ISLAMABAD – In a shocking revelation, the government reported a massive rise in tax exemption costs, reaching Rs5.8 trillion this year. This marks a record increase of Rs2 trillion in just the first year of the current government’s tenure. The data was released in the Economic Survey 2025, presented by Finance Minister Muhammad Aurangzeb. Surprisingly, the rise occurred despite many tax breaks being withdrawn last year.
In dollar terms, Pakistan lost $21 billion to tax exemptions—more than its $17 billion debt repayment due this year. These exemptions, granted under various tax laws, have steadily increased, raising concerns over transparency. Experts believe either hidden exemptions were introduced, or previous figures were underreported. The government’s efforts to reduce these benefits have not slowed the growth in tax expenditure.
Sales tax exemptions made up the largest share—Rs4.3 trillion—mostly due to petroleum products and imported goods. This is a 50% jump from last year’s Rs2.9 trillion. Sales tax losses on petroleum products alone hit Rs1.8 trillion, up from Rs1.3 trillion. Other major losses came from zero-rated and lower-taxed goods under the Fifth, Sixth, and Eighth Schedules of the Sales Tax Act. The IMF has called for these exemptions to be removed or revised.
Income tax exemptions also surged to Rs801 billion—68% higher than last year’s Rs477 billion. These included tax breaks for government incomes, specific sectors, and allowances. Notably, tax credits alone cost Rs101 billion. Despite increased taxes on salaried individuals, other influential sectors like retailers continued to enjoy relief. The IMF is now urging the government to tighten income tax policies and reconsider all major exemptions.
Customs duty exemptions grew to Rs786 billion, driven by concessions for key industries and trade deals. This was a 45% rise from the previous year. Losses included Rs133 billion for sectors like auto and oil and Rs380 billion under the Fifth Schedule of the Customs Act. A senior FBR official hinted at possible errors in reporting and said a revision may exclude petroleum-related exemptions. However, the surge still reflects deep structural challenges in tax governance.