Pakistan's Spiraling Tax Exemptions: A Fiscal Dilemma

Pakistan's tax exemptions have ballooned to over USD 21 billion, outstripping the nation's debt repayment obligations. Despite government's attempts to scale back, exemptions continue to rise, raising concerns about fiscal responsibility and potential misreporting.

Pakistan's tax exemption costs have soared to an unprecedented USD 21 billion this year, overshadowing the country's obligations to repay USD 17 billion in maturing commercial and bilateral external debts. The figures were outlined in the Economic Survey of Pakistan 2024-25, released by Finance Minister Muhammad Aurangzeb.

The survey reveals that tax exemptions have surged to a record Rs 5.8 trillion in the current fiscal year, marking a stark rise from Rs 3.9 trillion in the previous year. Despite efforts to reduce these concessions, they have continued to climb, with significant increases in sales tax, income tax, and customs duty exemptions.

The report raises questions about the consistency of past data and concerns around hidden exemptions or understated figures from previous years. With no corresponding economic activity to justify the rise, Pakistan faces a fiscal challenge in addressing these ballooning tax expenditures.

(With inputs from agencies.)