Tax Expenditure Report 2026 categorises major income tax relief measures to improve transparency and assess their fiscal impact. ISLAMABAD: The Federal Board of Revenue (FBR) has classified seven major categories of income tax expenditures under the Income Tax Ordinance, 2001, providing a detailed framework to explain how tax exemptions and concessions support economic and social objectives while reducing government revenue. The classification, published in the Tax Expenditure Report 2026, is intended to enhance transparency by identifying the various forms of tax relief available to taxpayers and assessing their impact on the national exchequer. Exemption from income tax The FBR said certain individuals, organisations and entities are completely exempt from income tax despite otherwise falling within the scope of the Income Tax Ordinance. As an example, non-profit organisations and welfare institutions approved under Section 100C are exempt from income tax on earnings generated through voluntary contributions and qualifying activities under Clause 66 of Part I of the Second Schedule. Exemption from specific heads of income The report explained that certain categories of income are excluded from taxation even though they would normally form part of the tax base. For instance, profits earned from qualifying electric power generation projects established after 1 July 1988 under the government’s approved energy policy enjoy tax exemption for a specified period under Clause 132 of Part I of the Second Schedule. Deductible allowances According to the FBR, deductible allowances enable taxpayers to reduce their taxable income by claiming specified expenses or contributions that would not ordinarily qualify as business deductions. The report cited contributions to approved pension funds under Section 63 of the Income Tax Ordinance as an example, allowing individuals to reduce their taxable salary income. Tax credits Unlike deductions, tax credits directly reduce the amount of tax payable after the taxpayer’s liability has been calculated. The FBR noted that Section 65F provides a tax credit for qualifying investments in technology and…