While economic austerity remains the chorus of official declarations, Pakistan’s fiscal tapestry tells a more contradictory tale. The Economic Survey 2024-25, unveiled with polished restraint, omits critical disclosures—including revenue forfeitures from powerful sectors such as Independent Power Producers (IPPs) and capital gains.
Instead of curbing tax privileges as pledged, the government has allowed them to metastasize across a growing number of sectors. The result: a deepening gulf between tax potential and actual collections, with key exemptions bleeding the exchequer of hundreds of billions of rupees.
Rather than trimming the swelling burden of tax exemptions in alignment with the IMF’s stringent blueprint, Pakistan’s treasury has instead bloated its tax relief tab—ballooning to a staggering Rs5.85 trillion during the closing fiscal curtain of 2024-25.
Though Finance Minister Muhammad Aurangzeb unfurled the Economic Survey 2024-25 with calculated composure, he shied away from addressing the paradox: why these fiscal waivers continue to mount despite prolonged declarations of their systematic dismantling. Ironically, what was once Rs3.87 trillion in exemptions in FY 2023-24 has now metamorphosed into an eye-watering Rs5.84 trillion—marking a 50% amplification in forgone revenue within a single fiscal passage.
A cascade of tax leniencies—most conspicuously, sales tax exemptions on petroleum derivatives, preferential tariff structures on imports, diminished sales tax rates, and widespread immunities on both inbound consignments and indigenous transactions—have fanned this fiscal wildfire. Notably, the survey sidesteps any quantification of the waivers extended to the FATA/PATA zones, leaving a conspicuous fiscal blind spot.
Dominating the ledger of revenue attrition is the sweeping sales tax immunity granted to petroleum commodities via statutory regulatory orders (SROs), culminating in a monumental Rs1,496,124 million in revenue hemorrhage for 2024-25. Parallelly, the tax-free gateway for importing these same energy products shaved off an additional Rs299,640 million.
A curious contributor to this fiscal unraveling is the fixed sales tax structure governing cellular mobile devices, which drained Rs87,950 million from public coffers this year—a sharp escalation from Rs33,057 million the year prior, marking a vertical leap of Rs54,893 million.
The Federal Board of Revenue (FBR), already shouldering systemic stress, absorbed a Rs372 billion loss from sales tax exemptions on imports alone in 2024-25—a steep incline from Rs214 billion in 2023-24, rendering an incremental shortfall of Rs158 billion. As for domestically generated supplies, the tax-free treatment inflicted a dent of Rs613 billion in 2024-25, up from Rs461 billion the preceding year—adding another Rs152 billion to the fiscal erosion tally.
Income tax exemptions weren’t spared either, with their cost escalating to Rs800.8 billion in 2024-25—up from Rs476.9 billion—a growth gap of Rs323.9 billion. Similarly, customs duty exemptions surged to Rs785.8 billion from Rs543.5 billion, marking an increase of Rs242.3 billion in relinquished revenue.
In sum, while public pronouncements echo austerity and fiscal prudence, the underlying figures whisper a different tale—one where privilege, policy inertia, and political hesitation have coalesced into a colossal revenue sacrifice that may well haunt Pakistan’s economic scaffolding in the months to come.
Strikingly absent from the Economic Survey is any mention of the fiscal void left by exempted business income granted to Independent Power Producers (IPPs)—a notable omission considering the recurring debates surrounding the sector’s preferential treatment.
Equally elusive is any quantified loss from capital gains—a revenue stream often shielded by silence despite its significant fiscal potential. Meanwhile, the collective blow from tax credits alone soared to Rs101 billion in 2024-25, a sharp escalation from Rs24.374 billion in the prior fiscal cycle, thus registering a surge of Rs76.627 billion.
Exemptions arising from special provisions under the Income Tax Ordinance triggered a fiscal drain of Rs52 billion during 2024-25—a marginal ebb from Rs62.756 billion in the previous year. Broader exemptions applicable to total income carved a staggering Rs443.445 billion out of the revenue basket in the reviewed period.
Allowable deductions—another vein of fiscal leakage—bled Rs16.4 billion in 2024-25, climbing steeply from Rs5.912 billion in 2023-24. The resulting difference of Rs10.488 billion underscores the ballooning generosity built into deductible structures. Rate reductions in income taxation didn’t spare the treasury either, exacting a toll of Rs45 billion in 2024-25—up Rs19.508 billion from Rs25.492 billion the year prior.
In a disquieting revelation, the Federal Board of Revenue (FBR) hemorrhaged Rs985.594 billion in 2024-25 under the Sixth Schedule’s tax-free umbrella—a colossal escalation from Rs675 billion in 2023-24. This dramatic uptick, spanning import and domestic exemptions, pushes the tally of forgone sales tax revenue to an extraordinary high.
Zero-rating incentives extended via the Fifth Schedule of the Sales Tax Act, 1990, also intensified, devouring Rs683.429 billion in potential revenue—an explosive jump from Rs206.053 billion in 2023-24. The Rs477.376 billion leap exemplifies the cost of strategic indulgence across select sectors.
Interestingly, the survey does not cite any revenue attrition under the federal excise umbrella, implying either fiscal equilibrium or a calculated silence. The tab for income tax exemptions swelled to Rs800.8 billion this fiscal, juxtaposed with Rs476.960 billion in 2023-24—marking a Rs323.84 billion surge.
Likewise, the fiscal burden from customs duty exemptions climbed to Rs785.9 billion in 2024-25, outpacing the Rs543.521 billion recorded a year earlier. This denotes an increment of Rs242.379 billion in untapped revenue streams. Further erosion came via trade facilitation frameworks: tariff relaxations under Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) cost the exchequer Rs61 billion this year, compared to Rs44.107 billion previously—a delta of Rs17 billion.
A faint fiscal reprieve surfaced within the domain of customs duty exemptions accorded to the automobile industry, exploration and production (E&P) firms, general concessions, and the CPEC initiative. These concessions led to a combined shortfall of Rs133.236 billion—ironically a decrease from Rs146.598 billion in 2023-24, shaving Rs13.362 billion off the prior year’s loss. Altogether, the fiscal landscape revealed by these figures paints a paradox: a nation professing austerity, yet bleeding profusely through policy-sanctioned exemptions—many of which now appear to serve more as permanent privileges than temporary stimulus tools.
The 2024-25 fiscal narrative is not one of cautious financial stewardship but of unchecked leniencies. While officials speak of reforms and discipline, the numbers betray an entrenched pattern of institutional indulgence. With the FBR silently enduring colossal revenue hemorrhages and entire sectors shielded by opaque privileges, Pakistan risks locking itself into a loop of fiscal fragility. Unless tax policy is realigned with transparency, equity, and long-term national interest, these exemptions will continue to act not as economic enablers but as structural liabilities.