ISLAMABAD: The International Monetary Fund (IMF) has stated that provinces must decisively implement their commitment to reform agricultural income tax regimes, and support the revenue mobilization and fiscal consolidation efforts, including through taxation of property and meeting their primary surplus targets.
The Fund in its report noted that reorganizing federal-provincial fiscal relations through the National Fiscal Pact is a critical step in broadening revenue mobilization.
Tax policy reforms should be accompanied by robust administration to ensure effective implementation, improved compliance, and stronger collection from a broader base. Public Sector Development Programme (PSDP) reform is crucial to efficient and effective public investment management.
Agri tax collection from coming July: Aurangzeb
Additionally, efforts to consolidate the Treasury Single Account and adopt necessary measures to make better use of cash balances accumulating in the commercial banking sector will improve liquidity management, reduce borrowing costs, and enhance overall debt management.
The report noted that provinces are committed to contributing more to strengthening public finances. The federal and provincial governments have agreed on the program’s fiscal strategy and the required provincial surpluses, and for provinces to deliver surpluses of around 1 percent of GDP in fiscal year 2025.
The federal government and the provinces have also agreed to enter a National Fiscal Pact (end-September 2024 Structural Benchmark) that will devolve specific federal spending responsibilities to provinces, in line with the 18th constitutional amendment.
Memorandum of Economic and Financial Policy will enhance provinces own tax-collection efforts, including agricultural income tax (fiscal year 2025), sales tax on services (fiscal year 2026), and property tax (fiscal year 2026).
National Fiscal Pact aims to rebalance inter-governmental relationship and National Fiscal Pact envisages some spending responsibilities from the federal government will be devolved to the provincial governments in line with the spending allocations established in the 18th constitutional amendment, including, additional contributions for higher education, health, social protection, and regional public infrastructure investment.
At the same time the provinces will take steps to increase own tax collection efforts in sales tax on services, property tax, and agricultural income tax.
Copyright Business Recorder, 2024