2014年-世界发展银行全球_Study_on_Tax_Expenditures_in_Pakistan_48页_1mb

Summary of the Study on Tax Expenditures in Pakistan

Core Content

This study provides a detailed assessment of tax expenditures in Pakistan for the financial year 2011-12, focusing on the income tax, sales tax, and customs duties. It defines tax expenditures and outlines a framework and methodology for measuring them, aiming to improve fiscal transparency and tax policy analysis.

Main Objectives

• To provide a proper definition of tax expenditures.
• To conduct a full inventory of tax expenditure measures in effect under the income tax, sales tax, and customs duties.
• To develop a methodology for estimating tax expenditures and apply it to the three major taxes.
• To make recommendations for improving future tax expenditure estimation and suggest the withdrawal of certain exemptions and concessions.

Key Definitions

• Tax expenditures are defined as "the tax revenue loss resulting from those preferential provisions of the law that provide certain taxpayers or sectors with concessions not available to others."
• Benchmark tax refers to the standard tax structure that applies to all taxpayers and includes:
  • Rate structure
  • Accounting conventions
  • Deductibility of compulsory payments
  • Provisions for administration
  • International fiscal obligations

Tax Expenditures Overview

Income Tax

• Total tax expenditures estimated at Rs. 153.13 billion for 2011-12.
• 75% of the expenditures were attributed to the corporate sector, with the remaining from individuals and Associations of Persons (AOPs).
• Exemptions include:
  • Charitable contributions
  • Special deductions for certain industries
  • Capital gains exemptions
  • Depreciation allowances
  • Loss set-offs

Sales Tax

• Total tax expenditures estimated at Rs. 230.27 billion.
• Exemptions and concessions are categorized into:
  • Import stage: Based on GD (Goods Declaration) data and relevant SROs.
  • Domestic stage: Includes reduced rates for four sectors and items in the Sixth Schedule.
• Methodology includes Input-Output tables and sales tax return data.

Customs Duties

• Total tax expenditures estimated at Rs. 128 billion.
• Exemptions and concessions are granted through:
  • SROs
  • Special classification in Chapter 99
  • Specific tariff rates
• Data is primarily sourced from GD (Goods Declaration).

Key Findings

• Tax-to-GDP ratio in Pakistan has declined from 10.6% in 1999/2000 to 9.5% in 2011/12, indicating weak tax revenue effort.
• Structural issues such as narrow tax bases, tax evasion, and low tax morale have contributed to the low tax-to-GDP ratio.
• Tax expenditures are often regressive, as higher-income individuals benefit more from tax concessions.
• Some tax expenditures have procyclical effects, meaning they increase during economic booms and decrease during recessions.
• Integration of tax and expenditure policies is advocated to ensure equity, effectiveness, and efficiency in public spending.

Recommendations

• Develop a consistent and well-defined methodology for estimating tax expenditures.
• Withdraw or reform certain exemptions and concessions that are not aligned with the benchmark tax.
• Integrate tax expenditures into the expenditure management system to enhance fiscal transparency and accountability.
• Enhance tax administration and enforceability to reduce the shadow economy and improve tax compliance.
• Improve data collection and reporting mechanisms to better assess the distributional impact and efficiency of tax expenditures.

Conclusion

The study highlights the importance of tax expenditures in Pakistan's fiscal policy and emphasizes the need for greater transparency and systematic measurement. By understanding the nature and impact of tax expenditures, the government can better design tax reform strategies that promote equity, efficiency, and sustainable development.

Key Information

• Total estimated tax expenditures for 2011-12: Rs. 511 billion (lower bound estimate).
• Tax-to-GDP ratio should increase by 5 percentage points over GDP growth rate to reach 14%.
• OECD Manual serves as the conceptual framework.
• Tax expenditures are a tool for achieving fiscal and social objectives, but they should not replace expenditure programs.
• FBR and Ministry of Finance have initiated efforts to report and analyze tax expenditures.

Annexes

• Annex I: Summary of tax expenditures under income tax.
• Annex II: Withholding taxes.
• Annex III A: Tax expenditures under customs.
• Annex III B: Tax expenditures under Chapter 99.
• Annex III C: Goods on specific rate of duty.
• Annex IV: Tax expenditures under sales tax (import).
• Annex V: Recommendations for tax expenditure reform.