ISLAMABAD: The PML-N government has kept under wraps an official study which contains startling disclosures about tax exemptions in order to protect influential people and sectors enjoying undue benefits at the cost of the exchequer, according to a study.

The study, carried out by the Federal Board of Revenue (FBR), has worked out for the first time the cost of exemptions granted under statutory regulatory orders (SROs). But Finance Minister Ishaq Dar seems to be in no mood to make it public or place it on the floor of the parliament.

Requests to tax officials for a copy of the report invariably drew a rehearsed reply: it is a ‘confidential’ document and meant for only a few eyes.

Tax officials familiar with the report gave two reasons for keeping the report secret — one, for the first time influential businessmen have been identified as the real beneficiary of these SROs, and two, leakage of the report is expected to build up pressure on the government to do away with all exemptions instead of obtaining fresh loans.

In both cases, the PML-N is in the dock. It seems to be reluctant to implement findings of the study, a top government official hinted. As if to buy time, a committee has been constituted to study whether phasing out of the SROs is feasible from July 1.

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.

Economists term SRO as ‘financial NROs’ in the case of Pakistan — an allusion to the National Reconciliation Ordinance for politicians. Former chief economist Dr Pervez Tahir said every SRO is issued on the pressure of vested interests and influential people.

A tax official said the high and mighty now regard SROs as their right.

To put an end to the SRO culture, economists suggest the power of issuing such orders should rest with the parliament.

Authoritative sources said the report reveals that yearly tax exemptions enjoyed by industrialists, feudal lords and companies now amount to a staggering Rs478 billion — nearly two per cent of the country’s gross domestic product (GDP).

These exemptions can be eliminated to a large extent if there is political will.

Even if considered small in terms of volume, the amount is enough to produce 1,700 MW of electricity.

Dr Pervez Tahir, the economist, said elimination of all SROs would ensure 30 per cent growth in revenue collection. Mr Tahir suggests full autonomy for FBR, an independent revenue collection authority modelled on the State Bank.

GST & FED EXEMPTIONS: The FBR has worked out sales tax and excise duty exemptions at Rs248 billion. However, this amount does not include those exemptions which cannot be calculated, eg exemption on raw vegetables, tandori roti etc.

The exemptions under this head were because of waiving of 17 per cent tax at import stage, which constitutes maximum part of the total exemptions.

Major sales tax exemptions SROs identified are — SRO727(I)/2011 (plant and machinery); SRO549(I)/2008 (zero percent sales tax on specific goods); SRO811(I)2009 (zero-per cent sales tax on polyethylene and polypropylene); SRO575(I)/2006 (machinery, equipment, apparatus and items including capital goods); SRO492(I)/2009 (temporary imports); SRO551(I)/2008 (exemption from sales tax on imports of certain goods); SRO863(I)/2007 (zero-rating of specific goods); SRO69(I)/2006 (levy of sales tax on rapeseed).

The partial exemption on sugar alone, which mostly benefits a handful of political families, ranges between Rs12 billion and Rs20 billion.

In addition, there are exemptions in the Sixth Schedule of the Sales Tax Act, 1990. Most of these related to general public like exemptions on pharmaceuticals etc.

Customs Exemptions: The cost of customs exemptions is estimated at Rs136 billion. These exemptions include the revenue loss of around Rs40 billion because of preferential trade agreements and Rs96 billion exemptions to specific individuals, industry or sectors.

The exemptions that cost around Rs96 billion is mostly for the influential businessmen. Most of the exemptions go to the manufacturer and vendors of automobile sector, exploration companies, specific items, conditional import of raw material and components.

There are numerous SROs issued for giving concessions to specific industries and individuals as well in the last five years. Tax exemptions are also enjoyed by influential departments, such as the National Logistic Cell (NLC), Fauji Foundation, CSD and others.

The preferential trade agreements that Pakistan signed in the recent past caused huge losses in revenue to the government exchequer because these agreements were not properly negotiated to protect country interest.

In case of the Pak-Malaysia free trade agreement (FTA), the revenue cost of exemptions to Pakistan is estimated at $240 million, while Malaysia has forgone only $2 million, reflecting a huge disparity.

While in the case of Pak-China FTA, this disparity is in the range of 93 per cent (Revent loss to Pakistan because of tax waiver on imports) and 7 per cent (China loss of revenue). In absolute terms, the revenue loss for Pakistan is estimated close to Rs20 bn only in case of Pak-China FTA alone.

No tangible growth was witnessed in exports to these countries because of these agreements. In case of Pak-Malaysia FTA, Pakistan gets market of only $26 million, while it waived off duty more than $35 million.

These and other exemptions like UN conventions, diplomats, charitable institutions cannot be touched as well.

Income Tax Exemptions: The income tax exemptions is around Rs94 billion. Most of the exemption amount is related to independent power producer (IPPs) which is estimated at Rs50 billion. Boards of education, universities and computer training institutes also remained major beneficiaries of tax exemptions worth more than Rs10 billion. Over Rs15 billion for various enterprises and Rs6 billion on capital gains.

Most part of exemptions for charitable institutions and non-government organisations (NGOs) are also not touchable.

There are several exemptions, which are less in value but symbolic. These exemptions are available to president, prime minister, ministers, judges and generals.

A tax official said the cost of these exemptions is in few millions.

For example perquisites, and allowance of federal ministers exempted, entertainment allowance of provisional governors, chiefs of staff, Pakistan Armed forces and the Corps commanders also exempted. The perquisites of judges of superior judiciary and high courts are also tax exempted.

Islamabad-based Sustainable Development Policy Institute (SDPI) Executive Director Dr. Abid Suleri said only those SROs be eliminated, which are arbitrary and giving incentives to certain individuals. He said government will have to keep some SROs meant for humanitarian and charity organisations.

Dr. Suleri said all those SROs need to be eliminated which give incentives to vested interest or individual, businesses or sectors. 'These SROs are not only causes revenue loss but also serves as a major source of corruption', he said.