Charter of the Economy Large Traders The lowest incidence of taxes is on the wholesale and retail trade sector of Pakistan. This sector is characterized by a high degree of under taxation and tax evasion. The revenue loss estimates in this sector are given in Table 9.6. Overall, the tax expenditure, is estimated at Rs 226 billion. Table 9.6: Tax Breaks and Concessions to Large Traders Tax Breaks/ Concessions and Tax Evasion 1. Low Income Tax on Electricity Bills 2. Low Withholding Income Tax on Commercial Importers 3. Reduction in Tax Liabilities due to under-invoicing of imports TOTAL (Rs in Billion) Magnitude of Tax Expenditure 2020-21 50 93 83 226 High Net Worth Persons The tax expenditure on high-net-worth persons and the likely magnitude of tax evasion is given in Table 9.7. There are multiple tax credits and concessions in the personal income tax. One of the big concessions is schedular income taxation rather than taxation of comprehensive incomes. This has greatly reduced the progressivity of the income tax system. In addition, there are many tax credits. Table 9.7: Tax Breaks and Concessions for High-Net-Worth Persons Tax Breaks/ Concessions and Tax Evasion 1. Tax credit provisions in the Income Tax Ordinance 2. Schedular rather than Comprehensive Income Taxation 3. Exemption from long-term Capital Gains Tax 4. Low assessment of Property Tax, Income Tax and Stamp Duty on large Urban Properties 5. Big Exemption from Withholding Tax on Electricity Bills TOTAL (Rs in Billion) Magnitude of Tax Expenditure 2020-21 78 106 54 92 56 386 Overall, the quantum of tax expenditure in the case of high-net-worth persons is estimated at Rs 386 billion in 2020-21. Further, a conservative estimate of the quantum of income tax evasion is Rs 400 billion. Mechanisms will need to be identified to curb this evasion. 96