ISLAMABAD: An official report of the Federal Board of Revenue (FBR) has shown income tax exemptions and concessions worth Rs30 billion given to the top government officials, military officers and judges of superior courts on perks and privileges in the tax year 2019.

The estimates come from the first-ever comprehensive report on “Tax Expenditure 2020” produced by the FBR, which has also developed a special appendix on tax expenditure on pension and commutation of pension of government servants. Tax expenditure is a technical term that refers to the amount of revenue the state foregoes when it grants a tax exemption or a concession.

As per FBR details, the cost of exemptions on house rent allowance to judges of the Supreme Court or High Courts is estimated at Rs32 million. The total number of in-service judges is 130 and the total house rent allowance paid to judges in the tax year 2019 was Rs127.171m.

The total cost of exemption on perquisites, benefits and allowances received by judges of Supreme Court of Pakistan and High Court is estimated at Rs283m. The tax expenditure is calculated at the rate of 25pc.

The FBR report shows value of superior judicial allowance stood at Rs526.507m for in-service judges while the value of perquisites for in-service and retired judges is Rs605.280m. The former allowance is exclusively for 130 in-service judges while the second one is for both in-service and 390 retired judges. The exemption cost is estimated at Rs2m on free of rent residence for President of Pakistan, Governors and the Chiefs of Staff of Pakistan Armed Forces. The cost of concession in rates on allowance to pilots of any Pakistani airlines is estimated at Rs430m.

Reports tax expenditure on pension and commutation of pension of govt officials, military officers and judges

Similarly, the cost of lower rates on flying and submarine allowance is estimated at Rs133m. The exemption cost is estimated at Rs84m on income received by dependents and families of Shuhada. The cost of different allowances paid to armed forces personnel is estimated at Rs1.106bn.

The report did not mention the cost of free conveyance and sumptuary (entertainment) allowances given to Chiefs of Staff of Pakistan Armed Forces and corps commanders. The cost of foreign allowances to employees (diplomats) is estimated at Rs1.167bn.

As the pension and commutation of pension are exempted from income tax, the report used pension data maintained by four provincial and federal accountants general and separate AGs for Pakistan Railways, Pakistan Post and Military.

The exemption cost is estimated for the pension over and above the exemption threshold of Rs400,000.

The report estimates Rs13.68bn as the impact of revenue foregone on account of exemption on pension.

The total amount of pension paid in the tax year 2019 stands at Rs276.4bn across Pakistan. Of these payments, the highest share is of Punjab province that stood at Rs87.39bn or 31.6pc of the total, followed by military Rs81.17bn (29.36pc), Sindh Rs56.56bn (20.4pc), Khyber Pakhtunkhwa Rs22.71bn (8.2pc), federal government Rs11.18bn (4.04pc), Balochistan Rs9.17bn (3.31pc), Pakistan Railways Rs6.74bn (2.43pc) and Pakistan Post Rs1.47bn (0.53pc). These figures include only those pensions whose amount is above Rs400,000 per annum.

The tax exemption cost calculated on civilian pension stands at Rs9.2bn and on military pension at Rs4.5bn.

For the higher slab, those receiving pensions above Rs5m per annum (more than Rs400,000 per month), the proportion between civilian and military is the other way round. The total amount paid in this slab to military personnel stood at Rs6.3bn, while the pension payments to all civilian officers, including judges of superior courts and federal secretaries, stood at Rs1.5bn. The report does not mention the number of beneficiaries.

The cost of tax exemption in this slab for the military is Rs1.6bn while for the civilians it stood at Rs0.4bn, respectively. The report does not mention any rank- or grade-wise comparison though the data shows that persons with higher ranks in the military have much higher monthly pensions compared to civilians.

The analysis of data regarding payments of commutation pension shows that early retirement payment is also higher in the military compared to civilian institutions. The highest payment of commutation was made in the military, which stood at Rs54.6bn or 32.7pc, followed by Punjab that stood at Rs33.9bn (20.3pc), Sindh at Rs30.7bn (18.4pc), KP Rs19.8bn (11.89pc), Balochistan Rs8.8bn (5.28pc), federal government Rs13bn (7.8pc), Pakistan Railways Rs3.8bn (2.4pc) and Pakistan Post Rs1.7bn (1.02pc).

Tax concessions on the payment of commutation pension were estimated at Rs16.65bn in the tax year 2019. This amount is also over and above the exemption threshold of Rs400,000.

Published in Dawn, June 26th, 2020