Provincial tax collections

According to a Business Recorder exclusive, the sum total of provincial tax collections during the first seven months of the current year rose to 87 billion rupees in comparison to the 70 billion rupees collected during period of July-January 2012-13. Punjab witnessed a rise in collections of 9 billion rupees - from 36 billion rupees last year to 45 billion rupees this year with a major increase attributed to stamp duty (one billion rupees) and urban property tax (one billion rupees). Sindh collections rose by 4 billion rupees - from 32 to 36 billion rupees with excise and stamp duty the major contributors to the rise. Khyber Pakhtunkhwa collections rose by a whopping 3.9 billion rupees - from 1.8 billion rupees to 5.7 billion rupees and Balochistan witnessed a rise of 370 million rupees - from 483 million rupees to 853 million rupees. In percentage terms Punjab increased collections by 25 percent, Sindh by 12.5 percent, KPK by 216 percent and Balochistan by 76.6 percent. Hence in percentage terms KPK performed a lot better than Sindh and Punjab with Balochistan performing the second best in terms of increasing the provincial revenue generation in percentage terms.
In their defence, the governments of Punjab and Sindh would no doubt point to the fact that they have been proactively engaged in enhancing revenues over and above those that accrue to the provinces from the federal divisible pool and hence their capacity to further enhance revenue is limited especially if taken in conjunction with the revenue generated by the insurgency-ridden KPK and Balochistan provinces. There is no doubt that the government of Sindh, followed a year or so later by Punjab, were extremely proactive in setting up their own revenue boards which then began collecting sales tax on services, a provincial subject as per the constitution. This, in turn, enabled the two provincial governments to credit the money directly to their coffers instead of first being diverted to the federal divisible pool that would then have been distributed according to the agreed National Finance Commission formula. It also ensured that they did not have to pay the Federal Board of Revenue (FBR) the 2 percent collection fee. However, few would agree that the provincial governments of the two richest provinces have exhausted all potential avenues of generating tax revenue particularly with reference to farm tax collections.
Past and incumbent federal governments - be they led by military dictators or civilians namely the PML-N or the PPP - have shown no will to amend the constitution that would have enabled the FBR to commence collecting taxes on all sources of income equally. Thus farm income continues to be exempt from tax and the rather illogical justification given by our parliamentarians with heavy representation from the farm sector is that the constitution stipulates that it is a provincial subject. And while provincial governments do tax farm income yet it is hoped that they begin to tax the income of our rich landlords at the same rate as that levied on other sources of income including the productive sectors and salaried class. Equity demands that income from whatever source be taxed equally and it is unfortunate that Punjab Chief Minister Shahbaz Sharif deemed it appropriate to levy a one off-tax on urban property which may or may not generate income while exempting the rich farmers.
KPK has established a revenue board this year and that may well account for the massive rise in its collections. However, more proactive steps would be required to meet its potential, which include ending the law and order problems that afflict the province today. Balochistan too has increased collections this year, however, the realisation of its potential is linked to the end of insurgency that would enable exploitation of its rich natural resources. However, this requires provincial as well as federal initiative to deal with the socio-political issues that have plagued the province for decades.