Dr. Muhammad Nadeem Sarwar, Research Lead (Economy and Institutions), presented his ongoing study “An Analysis of Tax Expenditures in Pakistan” (co-authored with Dr. Shagufta Shabbar) at the 4th RASTA Conference on September 3-4 in Islamabad.

The study examines tax expenditures, which are revenue losses from tax preferences like exemptions and credits. These measures, while intended to support social welfare or industries, often distort market forces and benefit specific groups disproportionately.

Using Input-Output (I-O) table data and the RA-Gap model, the study estimates sales tax expenditures from imports at Rs. 872.96 billion and Rs. 2,663.71 billion from domestic goods. Customs-related tax expenditures for 2023 are PKR 599.02 billion. Major beneficiaries include the export sector, especially textiles, food, and pharmaceuticals, along with households, embassies, and non-profits.

The study also looks at provincial sales tax structures in Punjab and Sindh, finding similar issues despite the absence of explicit tax expenditures. At the federal level, many tax expenditures are introduced through Statutory Regulatory Orders (SROs) without clear objectives, leading to inefficiencies.

Recommendations include making anonymized tax return data public for research, discontinuing SRO-based tax expenditures, and aligning remaining ones with specific goals and sunset clauses for evaluation.

For feedback and comments, the initial draft of the study is available at: https://rasta.pide.org.pk/wp-content/uploads/05.170-M-Nadeem-Sarwar_Paper.pdf

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