ISLAMABAD, May 31: At a time when Pakistan is under immense pressure to improve its abysmally low tax-to-GDP ratio, the Economic Survey reveals that in 2011-12, the government willingly gave away billions of rupees in tax exemptions.

In fact, under this policy, the Independent Power Producers (IPPs) were given income tax exemptions worth a whopping Rs46.939 billion - this is a raise of 5295.2 per cent over the year as the exemptions were worth Rs0.870 billion in 2010-11.

Under the present tax system, some sectors are under-taxed and others are not taxed at all. As a result of this, the survey said, the revenue loss to the government exchequer, because of major tax exemptions has become Rs185.496 billion in 2011-12, which is a six per cent hike on the loss in 2010-11 — Rs175.211 billion.

Out of this figure of Rs185.496 billion, Rs69.608 billion was lost due to exemptions in income tax in 2011-12, as against Rs46.508 billion last year, indicating an increase of 49.66 per cent.

Aside from IPPs, boards of education, universities and computer training institutes were also the major beneficiary of income tax exemption of Rs6.077 billion in 2011-12, following by another Rs11.201 billion to various enterprises, which were not disclosed in the survey.

On the positive sides, the sales tax exemptions declined by 28 per cent to Rs24.3 billion in 2011-12 from Rs33.762 billion last year.

However, this decline accrued because of imposition of GST on tractors, fertilisers and pesticides last year.

But contrary to this, the preferential trade agreements that Pakistan signed in the recent past and other duty exemption have caused a massive Rs91.588 billion losses to the government revenue in 2011-12, which slightly fell by 3.53 per cent on the loss in 2010-11 -- Rs94.941 billion.

The break up of the customs losses showed that maximum exemption in the customs duties available on imports from China under free trade agreement, which reached to Rs13.762 billion in the outgoing fiscal year from Rs10.867 billion last year, showing an increase of 26 per cent.

Other major beneficiary of these exemptions is the original equipment manufacturers. (OEMs) of the automotive sector stood at Rs19.196 billion in 2011-12, as against Rs19.073 billion, showing a marginal increase. The exemptions from customs duties for vendors of automotive sector reached to Rs12.851 billion in 2011-12 from Rs9.315 billion last year, showing an increase of 38 per cent.

Now with these whopping exemptions and other loopholes in the tax machinery, Pakistan’s tax-to-GDP ratio either remained stagnant or showed a decline during the past four years.

The low tax-to-GDP ratio can only be increased substantially, if the major contributors to GDP growth not included in the tax net can be brought into the tax system.

Even a recent study conducted by a Washington-based research institute has put the tax evasion in Pakistan at 57 per cent.

As a result, Pakistan is characterised as having the lowest tax-to-GDP ratio not only amongst the peer countries but also in the region. All this is happening because of the poor taxation system in the country.

Consequently, the government on Thursday admitted the low tax-to-GDP ratio had restricted Pakistan ability to counter inflation, deliver quality public service which could help set the stage for economic development in the past four years.