The Federal Board of Revenue (FBR) has clarified that the Federal Excise Duty (FED), applied on selected goods and services, does not fall within the scope of tax expenditures. This position was outlined in the recently issued Tax Expenditure Report-2025, where the revenue authority emphasized that FED is not to be treated as part of the country’s tax expenditure framework.
According to the report, the tax expenditure estimates for the year focus exclusively on income tax, sales tax, and customs duty, based on available data from fiscal year 2023–24. Collectively, these three streams reflect the concessions, exemptions, and preferential treatments that reduce potential government revenues and are therefore classified under tax expenditure.
FBR has drawn a distinction between these broad-based tax concessions and the nature of Federal Excise Duty. Unlike income tax or sales tax where exemptions, credits, and allowances create measurable gaps in expected revenues, FED operates as a targeted levy on specific categories. It is applied to select products and services without any inherent exemptions or broad-based concessions. This design, according to FBR, makes it distinct from conventional taxes included in tax expenditure analysis.
The clarification comes at a time when fiscal transparency and revenue documentation are under increased scrutiny, particularly given Pakistan’s commitments under the International Monetary Fund (IMF) program. By explicitly stating that FED is not classified as a tax expenditure, FBR has aimed to create a more accurate depiction of the revenue system and avoid misinterpretation of tax concessions.
Tax experts note that this clarification helps differentiate between structural levies and concessionary policies. While income tax and sales tax expenditures often represent foregone revenues due to policy-driven exemptions, FED is essentially a regulatory instrument that targets consumption of specific goods or services. Its primary role is revenue collection through a controlled levy, not economic incentivization through concessions.
In the broader context of fiscal policy, the Tax Expenditure Report-2025 remains a critical document for evaluating Pakistan’s revenue potential. The report estimates overall tax expenditures at Rs2.43 trillion in FY24, with the bulk of this figure arising from sales tax exemptions. By narrowing the definition and excluding FED, the report reinforces the principle that only policies which deliberately create revenue shortfalls should be categorized as tax expenditures.
Analysts suggest that while FED’s exclusion makes technical sense, it also highlights the broader debate on how Pakistan structures its taxation system. With the country continuing to face fiscal pressures, clarity on the scope and design of taxes becomes essential not just for policymakers but also for international lenders, investors, and taxpayers who demand greater accountability in public finance.
FBR’s ruling, therefore, not only provides technical clarity but also sets the stage for a more precise evaluation of tax policies moving forward. It underscores the need to draw clear lines between levies designed for regulatory and revenue purposes and those shaped by political or economic concessions.
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