ISLAMABAD: The government has decided to withdraw tax exemptions worth Rs180 billion, or 0.5 per cent of GDP, in the budget 2015-16 in a bid to bring down the deficit.

The exemptions granted through SROs currently stand at Rs483 billion. Of this, Rs104bn exemptions were withdrawn in the first phase in 2014-15 budget. The first phase of exemptions were finalised in 12 meetings which were formally submitted to the Finance Ministry in May 2014.

The SRO is an executive order, which grants tax exemptions to an individual, industry or sector. It is issued on the directive of either the finance minister, the cabinet’s Economic Coordination Committee or on a proposal by the Federal Board of Revenue.

To review modalities for withdrawing exemptions in the second phase, a meeting was held in the Federal Board of Revenue (FBR) on Friday, headed by Finance Minister Ishaq Dar. Commerce Minister Khurram Dastagir Khan and other senior officials were also present.

A source privy to the meeting told Dawn that several meetings will be held to finalise the quantum of exemptions given through SROs which will be withdrawn in the second phase.

“We are working in details to identify sectors enjoying exemptions”, the source added.

The exemptions will also include upward increase in tariff on certain products as well as change in schedules, said a source, adding the SRO exemptions to be withdrawn in the budget 2015-16 will be slightly over Rs100bn by taking into account certain sensitive sectors which needed protection.

There are areas like free trade agreements or preferential trade agreements where government has given tariff concessions to trading partners. Now, this issue can only be resolved through review of the existing treaties.

The FBR has already conducted a study on tax exemptions envisaging details of sector specific exemptions granted under Statutory Regulatory Orders (SROs). The report reveals that yearly tax exemptions enjoyed by industrialists, feudal lords and companies now amount to a staggering Rs480 billion — nearly two per cent of the country’s Gross Domestic Product (GDP).

In a statement, Finance Minister Ishaq Dar said that efforts are being made to end SRO culture. “No more exemptions for elite or privileged,” Mr Dar claimed.

Pakistan’s tax system had been riddled with distortive and discriminatory exemptions and concessions had been granted to vested groups over a long period.

Mr Dar said the first part of a comprehensive phase out plan (launched in 2013) for ending SRO/exemption culture; spread over three years had been undertaken.

In the second phase of the plan, the minister said all residual concessions/ exemptions either in the SROs or Schedules shall be withdrawn over the next year except socially sensitive concessions.

Published in Dawn, March 21st, 2015

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