SRB: rare jewel in Sindh’s crown

Sindh is not well known for quality institutions or governance. However, there are some islands of excellence in the sea of inefficiency and disorganization that marks the province. One of those is the Board of Revenue’s (BOR) land management department that has automated Sindh’s land records, and the other is the Sindh Revenue Board, which is responsible for collecting sales tax on services.

The latest fiscal budget for the province shows that the SRB is on its way to meet its planned revenue targets set out in the Sindh Tax Revenue Mobilization Plan 2014-2019. That plan had envisaged SRB increasing its tax collection to Rs100 billion by FY17.

In that light, SRB’s budgeted tax collection for FY18 at Rs100 billion is a year later than what was planned. But the fact that has consistently exceeded its annual tax collection targets despite reduction in tax rates (sans telecom) in FY15 and FY16 is something to write home about. The organization has come a long way since its formation, and unlike Sindh’s other tax departments – BOR’s tax department and Excise & Taxation department - its growth in tax collection has been phenomenal.

This performance is partly to be credited to professional management of the organization. Admittedly, however, it is also because of its scope – sales tax on services which is a big part of the GDP – and the fact that it is a new organization, which makes it free from the legacies of inefficiencies and corruption that typically mark government offices in Pakistan. Apart from that, it has the rare advantage of channeling funds from the country’s main sea port and financial hub.

Sindh has impressively diversified its tax base and increased collection from sales tax on services in recent years. It’s reliance on telecom sector has reduced from 35 percent in FY13 to 24 percent in FY15, and 13.3 percent in FY16. Likewise, collection from new areas such as contracts execution has grown from 1 percent in FY14 to 8 percent in FY16. The latest numbers are not publicly available, a subject discussed below, but there is no doubt that as a result of SRB’s efforts, Sindh has stood out amongst other provinces in terms of reducing its reliance on federal share in taxes.

Be that as it may, in order to achieve its stated vision “to develop as a modern, credible, efficient, and transparent tax administration” body, the SRB would have to take a few important steps. The easiest of those in terms of administration is to improve transparency.

Until a few years ago, the budget documents prepared by Sindh’s finance department used to provide object wise classification of the tax collected by the SRB. That shed light on SRB’s sources of collection from a wide array of services – be it laundries & dry cleaners, and personal care by beauty parlors, to telecommunication & internet, event managers, and architects. Now it is not the case.

SRB’s annual reports do provide summary information of the main sector it collects its tax from. But annual reports are usually published with a lag; for instance the FY16 report has only recently been published. Second, summary information is not the same as detailed information needed to analyze the pulse of taxation.

Both Sindh’s finance department and the SRB would do well to release detailed object wise classification of revenue collected by SRB. SRB’s efforts in taxpayer’s education have resulted in the nearly doubling of tax registrations in the last five years. But its annual reports also need to shed light on registrations from the sectoral lens.

Economic observers would also like to know the sectors of those from whom GST on services is collected in WHT mode. The WHT mode has become a major source of revenue for SRB (11.2% of total in FY16) but from which kind of services it is collected from, that information is not made public.

In the latest budget, Sindh has proposed to increase GST on telecom services, and bring it at par with other provinces by increasing it from 19 percent to 19.5 percent. That is not a good policy to follow, when in fact the world is waking up to the realization that ubiquitous telecom is a trigger point for GDP growth in other economic sectors.

Sindh is already cognizant that concessionary measures boost economic activity, which is why it has reduced the sales tax rates on travel agents & tour operators, on specific class call centers, amongst others. Similar measures should follow suit for telecom.

In December 2015, when BR Research met the late Tashfeen Khalid, SRB’s former chairman, he informed that SRB is looking to install 6000 plus POS terminals across the province with real time connectivity to SRB. These terminals were planned to be installed at businesses in the unorganized sector, such as restaurants, beauty salons, and other small-sized service providers, and the measure was expected to increase revenue collection by 25 percent by the end of FY18.

The SRB’s latest report for FY16 is silent on those reforms, and it is hoped the organization would follow up on those plans soon. On a bigger scheme of things, however, there is a need to estimate the services sector tax base in Sindh, for which Sindh government would do well to carry out a census of services sector establishments in Sindh, and soon.