Pakistan’s Soaring Tax Exemptions Surpass Debt Payments, Raising Alarms in Economic Survey 2024-25

In a striking revelation from the Economic Survey of Pakistan 2024-25, the country’s tax exemptions have reached a staggering USD 21 billion, surpassing even the USD 17 billion due in external debt repayments. This unprecedented rise has drawn serious concern over the sustainability of Pakistan’s fiscal policies.

According to data presented by Finance Minister Muhammad Aurangzeb, the total cost of tax concessions surged to Rs 5.8 trillion, a massive 51% jump from last year’s Rs 3.9 trillion. These exemptions have now overtaken the country’s commercial and bilateral debt obligations to major lenders like China, Saudi Arabia, the UAE, and Kuwait.

Tax Exemptions Rise Despite Budget Claims

What makes this development particularly troubling is that the Pakistan Muslim League-Nawaz (PML-N) government had previously claimed to have rolled back several tax exemptions in its last budget. However, the numbers paint a different picture—instead of shrinking, tax expenditures have ballooned.

This sharp rise in exemptions has come without any significant economic expansion during the year, which has sparked debate over the effectiveness of the government’s fiscal reforms. The Economic Survey clearly indicates that the intended rationalization of tax incentives has not materialized, raising serious questions about the country’s economic priorities.

Breakdown of Tax Expenditures

The report highlights how various types of taxes have seen a surge in exemptions:

• Sales Tax Exemptions: Rs 4.3 trillion (up from Rs 2.9 trillion)

• Income Tax Exemptions: Rs 801 billion (up from Rs 477 billion)

• Customs Duty Exemptions: Rs 786 billion (up from Rs 543 billion)

The Federal Board of Revenue (FBR) attributes this increase to structural flaws in the taxation system and a growing list of special treatments for certain economic sectors.

Unequal Tax Burden on Citizens

While some sectors continue to enjoy relaxed tax compliance and exemptions, salaried individuals have seen an increased tax burden, further widening the inequality in tax contributions. Sectors like retail, real estate, and trade are reportedly benefiting from preferential treatments and reduced compliance, as per the survey.

This imbalance has not gone unnoticed. Economists and public finance experts are warning that an unfair tax structure not only hurts revenue collection but also deepens public mistrust in the system.

Questions Over Credibility of Previous Estimates

The Economic Survey also raises doubts about the accuracy of past tax expenditure estimates. The report suggests that the sudden spike in tax exemption figures may be due to previously hidden exemptions being accounted for now, or possible underreporting in previous years.

If true, this implies that Pakistan’s fiscal vulnerability may have been understated, complicating its ongoing efforts to secure financial support from international lenders like the IMF.

Fiscal Reforms Under Scrutiny

Despite repeated promises by various governments to phase out unnecessary tax concessions, the numbers have only increased. This failure to rein in tax expenditures is now seen as a key obstacle to economic stability.

Experts argue that if Pakistan hopes to stabilise its economy and build credibility with foreign investors and institutions, it must adopt a more transparent and equitable taxation system.

The disproportionate burden on salaried individuals, combined with large-scale exemptions for influential sectors, is contributing to a widening fiscal gap, one that Pakistan can ill afford in its current economic climate.

Conclusion

The findings from the Economic Survey 2024-25 paint a concerning picture for Pakistan’s fiscal health. With tax exemptions reaching USD 21 billion, surpassing the country’s external debt obligations, it is clear that immediate and meaningful reforms are essential.

The rising cost of tax concessions not only affects government revenues but also undermines public confidence in fiscal governance. As Pakistan looks ahead to managing its debt and attracting foreign investment, fixing the tax structure must be a top priority.

Until then, the numbers will continue to rise—and so will the consequences.

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