Provinces expected to carry out budgetary reforms: Dr Vaqar

The provinces have enormous untapped tax potential in agriculture, property and transport but their contribution to the overall revenue streams remains around 7 percent. Dr Vaqar Ahmed, Head of Economic Growth Unit of Sustainable Development Policy Institute, said this while speaking at a seminar on 'Provincial Taxation Reforms in Pakistan: Case of Punjab and Sindh Provinces' here Thursday.
"Next National Finance Commission Award is going to be an uphill task for the government if tax rates aren't revised and the tax base isn't further expanded," he added. The tax-to-GDP ratio is stuck at about 10 percent for the last many years, which is, at least 5 percent lower than the average tax ratios of comparable economies, he said.
"Pakistan is moving towards new NFC Award and provinces are expected to carry out budgetary reforms. There revision requires a scientific base for it. Crucial data on services is missing, when there is a large informal sector in services," he said. Mohsin Khan Leghari, Member Finance Committee of the Senate, said when the NFC Award was introduced in 2010, Punjab reduced its tax ratio, because it would get money from the federation.
"We go for popular things rather than right things because going for high tax rates could result in decrease of votes," he said. The Senator said there is a lot of talk that agricultural sector evades tax. In Punjab, agricultural taxes were introduced in 1997. These rates are more demanding than the other taxes. Revenue department of Punjab is not trying hard to collect agricultural tax it is not even pursuing agricultural tax aggressively. They go only after landholding taxes, which gives nothing mentionable. The department needs to improve performance.
Although public welfare is related with taxation, but, people do not trust the government, when they see their money being spent on protocols of the politicians, he said. Syed Mushtaque Kazimi, Advisor Tax Policy Sindh Revenue Board, said the provinces are entitled to collect services tax under the 7th NFC Award. In 2000, Sindh province levied sales tax, but it was collected by the federation. The tax to GDP ratio should be around 15 percent.
"The SRB is running on corporate lines, so it is performing well and is free from political interventions. The SRB does not work under the Ministry of Finance; it works directly under the Chief Minister of Sindh," he said. Rashid Ibrahim, Chairman Taxation Committee ICAP, said one consolidated audit department is required which represents all tax authorities and provinces. Bulk of the taxes is indirect in nature. Even double taxation on the telecom sector has not been removed for several years. Banking transactions are still exposed to that levy.