Pakistan extended tax exemptions worth Rs61 billion under multiple Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) during the fiscal year 2023–24, according to the latest Tax Expenditure Report 2025 released by the Federal Board of Revenue (FBR). The figure marks a notable increase from Rs44.1 billion in the previous fiscal year, signaling the government’s continued reliance on trade facilitation measures to strengthen bilateral and regional partnerships.
The report highlights that these exemptions were designed to support Pakistan’s long-term economic cooperation with strategic trading partners, including China, Malaysia, Indonesia, and Sri Lanka. Officials at the FBR stated that the concessions are part of the country’s broader trade policy aimed at promoting industrial competitiveness, facilitating imports of essential raw materials, and enhancing regional connectivity through preferential market access.
A significant portion of the total exemptions — roughly Rs47.16 billion — was granted under the Pakistan-China Free Trade Agreement (FTA), making it the single largest contributor to Pakistan’s trade-related tax relief. The China FTA continues to dominate the country’s import portfolio, covering a wide range of industrial inputs and consumer goods essential for domestic production.
Following this, imports under the Pakistan-Indonesia PTA received Rs5.42 billion in duty exemptions, while the Pakistan-Malaysia PTA accounted for Rs4.99 billion in tax relief. The Pakistan-Sri Lanka FTA contributed Rs2.50 billion in concessions, while Rs336 million worth of imports were exempted under the South Asian Free Trade Agreement (SAFTA). Smaller but emerging frameworks, including the Pakistan-Turkey FTA and the Pakistan-Uzbekistan Transit Agreement, also featured in the report, though their fiscal footprint remained limited due to relatively lower trade volumes.
According to the FBR, these tax expenditures play a crucial role in maintaining competitive import costs and fostering cross-border commerce. By reducing tariff barriers, the government aims to create an enabling environment for businesses, promote industrial diversification, and strengthen Pakistan’s position in regional value chains.
However, the report also underlines growing concerns over the fiscal implications of such exemptions. The Rs61 billion figure represents a significant expansion in tax expenditure at a time when Pakistan is pursuing fiscal consolidation under the International Monetary Fund’s Extended Fund Facility (EFF). Policymakers and experts are now calling for periodic evaluations of these trade concessions to ensure they align with both economic and budgetary priorities.
Economists suggest that while trade agreements are essential for boosting exports and fostering regional cooperation, unmonitored and prolonged tax reliefs can strain domestic revenues. Rationalizing these exemptions — particularly those with limited economic spillovers — could enhance fiscal transparency and ensure better resource allocation without undermining trade competitiveness.
The FBR’s report also reiterates its commitment to aligning tax relief measures with the country’s strategic trade policy. Officials emphasized that future exemptions would be reviewed based on performance metrics, trade balance outcomes, and their contribution to industrial growth. The agency is expected to strengthen monitoring mechanisms to ensure that incentives translate into measurable economic benefits rather than revenue erosion.
Trade experts believe Pakistan’s growing participation in regional trade blocs and bilateral arrangements reflects its strategic pivot toward market diversification. Yet, they caution that the government must maintain a balance between promoting trade facilitation and safeguarding fiscal sustainability, especially as the country navigates a challenging macroeconomic environment marked by high inflation, low reserves, and structural reforms.
With the global trade landscape shifting rapidly, Pakistan’s trade-related fiscal strategy will play a key role in shaping its competitiveness in regional markets. Going forward, consistent policy coordination between the Ministry of Commerce, FBR, and other stakeholders will be essential to ensure that trade agreements deliver both economic and fiscal dividends.
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