On June 30, 2025, the Government of Pakistan passed the Finance Act 2025–26, quietly granting more than 50 tax exemptions to various public and private entities. These include institutions such as the State Bank of Pakistan (SBP), Fauji Foundation, Army Welfare Trust, and several disaster relief and infrastructure-related funds. While these exemptions have been justified as a means of promoting national development and supporting public welfare initiatives, the lack of transparency and fiscal accountability has sparked debate among economists, tax experts, and civil society.
This article provides a detailed breakdown of the tax exemptions, evaluates their potential fiscal and social impact, and offers recommendations to improve transparency and equity in future financial legislation.
Several central institutions were granted full tax exemptions to ensure smooth regulatory functioning:
These exemptions continue Pakistan’s policy of supporting its key financial regulatory institutions.
Entities affiliated with the military remain some of the largest beneficiaries:
In addition, monetary awards given to Olympic medalists have been exempted from tax starting tax year 2025, aligning with national sports encouragement policies.
To support humanitarian work, several funds received continued or renewed exemptions:
Scholarship programs like the National Endowment Scholarship for Talent (NEST) and Balochistan Education Endowment Fund (BEEF) were also included.
To support long-term infrastructure and scientific development:
These exemptions are designed to facilitate national infrastructure priorities, a policy direction consistent with long-standing recommendations by development institutions such as the Asian Development Bank.
Entities that promote trade and development were granted tax immunity:
Pakistan’s alignment with these global entities also supports international frameworks like those outlined in the World Bank’s Pakistan country overview.
While the National Assembly approved the Finance Act and President Asif Ali Zardari signed it into law, the process has been criticized for lacking transparency. Many of the exemptions were embedded within the annexures of the Finance Bill and were not explicitly discussed in public parliamentary sessions or disclosed to the media ahead of approval.
There was no accompanying white paper, fiscal impact statement, or stakeholder consultation publicly released before the exemptions were finalized—prompting concerns from economists and accountability groups. Best practices suggested by institutions like the International Monetary Fund (IMF) recommend full public disclosure and impact reporting for all tax expenditures.
While official figures regarding the fiscal cost of these exemptions have not been released, past precedent suggests that such exemptions can cost the national exchequer Rs 30–50 billion annually. The concentration of exemptions in elite or state-affiliated institutions has also raised questions about equity and the long-term sustainability of the tax base.
This concern is not unique to Pakistan; global institutions like the OECD have warned of how unchecked exemptions and base erosion undermine equitable tax systems.
Positive Outcomes
Areas of Concern
Entities benefiting from tax exemptions should publish annual impact reports disclosing how these exemptions support public benefit objectives.
Each exemption should have a fixed duration (e.g., 3–5 years) and be subject to performance review before renewal.
Auditors General or independent watchdogs should be tasked with overseeing how exempted funds are managed.
Extend exemptions to non-profit organizations involved in education, health, environmental sustainability, and social welfare, particularly those operating in underserved areas.
Global tax reform movements like the OECD’s Base Erosion and Profit Shifting (BEPS) project stress the importance of these mechanisms for developing countries.
Q1: Why is the State Bank of Pakistan tax-exempt?
To ensure its independence in formulating and executing monetary policy without undue financial constraints.
Q2: Are Olympic athletes’ awards really tax-free now?
Yes, awards given to Olympic medal winners are now exempt starting from tax year 2025.
Q3: Who monitors the spending of exempted funds?
There is currently no mandated oversight body for this. Experts are calling for legislative mechanisms to track fund usage.
Q4: What is the estimated loss to the national treasury?
While official estimates are unavailable, economists project annual revenue loss between Rs 30 to Rs 50 billion.
The tax exemptions granted under the Finance Act 2025–26 reveal both policy intent and systemic gaps. While promoting welfare and development is commendable, the lack of transparency, absence of fiscal impact disclosures, and narrow beneficiary spectrum diminish the public’s trust in the process. Pakistan needs a modern, accountable, and equitable tax exemption policy framework that aligns with global best practices and national development goals. For sustainable progress, fiscal responsibility must go hand in hand with institutional support.
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