Cash-starved govt doles out Rs2.35tr in tax exemptions

ISLAMABAD: The government on Thursday announced a decline in tax exemptions in the outgoing fiscal year — the first such reduction in recent years — according to the Pakistan Economic Survey 2025-26 unveiled by Finance Minister Muhammad Aurangzeb. The survey noted an unprecedented 3.37pc fall in tax exemptions, bringing the cost down to Rs2.353 trillion in FY26 from the downward-revised Rs2.434tr recorded in FY25. In FY25, the government had initially reported exemptions at Rs5.84tr, a sharp 51pc rise from Rs3.879tr a year earlier. However, the figure was later revised to Rs2.434tr, with the survey offering no explanation beyond a reference to “errata”. The decline in the cost of tax exemptions comes after seven consecutive years of increases, despite repeated government assurances that such concessions would be gradually curtailed under the International Monetary Fund programme. Economic Survey reports a rare decline in concessions after seven years’ increases Last year, the FBR had projected a sharp rise in the cost of tax exemptions, largely due to a Rs1.796tr waiver on domestically supplied and imported petroleum, oil and lubricants (POL) products. In the latest survey, however, the government omitted this figure. However, the government had already planned to raise more than Rs1.4tr through the petroleum development levy (PDL). The exemption is essentially fiscal in nature — provinces receive no share from this amount, while the federal government recovers the full proceeds through the PDL, which does not form part of the divisible pool. As a result, the federal government bears minimal actual cost, but provinces are excluded from revenue sharing on PDL collections. The value of tax exemptions has increased over the years. In FY18, it was Rs540.98 billion, rising to Rs972.4bn in FY19, Rs1.49tr in FY20 and then easing slightly to Rs1.314tr in FY21, before surging to Rs1.757tr in FY22. These tax concessions were extended to all sectors to promote industrialisatio