FBR faces Rs 1.25 trillion revenue loss in 2022-23

The Tax Expenditure Report 2024 has shed light on a concerning issue affecting the Federal Board of Revenue (FBR). During the fiscal year 2022-23, the FBR faced a substantial revenue loss of Rs 1.25 trillion due to the exemption of sales tax on key petroleum products. These products, including petrol, high-speed diesel, kerosene oil, and light diesel, accounted for nearly 44% of the total sales tax expenditure, marking a significant increase of 98.66% compared to the previous period.

The surge in tax expenditure can be attributed to the zero-rating of these products starting from February 1, 2022, as per SRO 321(I)/2022. This policy shift resulted in a sales tax expenditure of Rs 633 billion for the initial five months of 2021-22, which escalated to Rs 1.257 trillion for the entire year in 2022-23. The report emphasized that the calculation of the heightened tax expenditure was based on a twelve-month period for 2022-23, unlike the five-month period in 2021-22.

Upon analyzing the sales tax expenditure over a full twelve months, the report uncovered a decrease of 17.23%. This decline was determined by extending the average sales tax expenditure from the five-month period of 2021-22 to cover a complete twelve months. These findings underscore the significant impact of sales tax exemptions on petroleum products on the overall revenue collection of the FBR.

The revelation from the Tax Expenditure Report 2024 highlights the critical need for a comprehensive review of sales tax exemptions on petroleum products to ensure sustainable revenue generation for the FBR. Addressing this issue is crucial for maintaining financial stability and meeting budgetary targets effectively.