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  • Jun 11th, 2017
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The provincial budgets are yet negating the spirit of 18th amendment by relying more upon the federal government for financial transfers and share in divisible pool in the financial year 2017-18, said tax experts. It may be noted that the passage of 18th amendment envisages dependence of federal government on provinces in terms of tax on services under the devolution plan.

They said it was not prudent to transfer tax power on provinces in terms of tax on services without having developed the expertise at the provincial level. He also points out that the provincial bureaucrats have not developed any financial administrative structure. But a few others have attributed it to the inefficiencies inherited from the federal government, and more specifically from the Federal Board of Revenue (FBR).

According to the budget documents, the Punjab government will collect only 23 percent of revenue targeted for the fiscal year 2017-18 despite having huge machinery and a very efficient chief minister in place.

In its annual statement of revenue and expenditures, the Punjab government has pitched total general revenue receipt at Rs 1,502 billion. Out of it, the share from the Federal Divisible Pool (FDP) is estimated at Rs 1,154 billion, which means that the Punjab government would generate only 23 percent of the total revenue throughout its own sources.

Tax experts have pointed out that the federal government has also opted for an easy mode of tax collection, ie, through indirect taxes. The budget documents suggest that the Punjab government will receive Rs 698 billion from indirect taxes whereas share from the direct taxes would be Rs 456 billion throughout the fiscal year. The province's own direct taxes amounted to Rs 38 billion in FY 2016-17 out of which major taxes were generated from property and land revenue.

It may be noted that the government has claimed that the contribution from services has increased to 59 percent of total GDP. It has further been claimed that the GDP has increased to $300 billion, which means that the share of services in $177 billion that becomes Rs 17700 billion in terms of local currency. But the government could collect only Rs166 billion, which shows the pathetic performance of the provinces. It is worth noting that collection of taxes from services fall within the preview of provinces.

According to the tax experts, the situation is not any promising if one looks into the revenue statement of Sindh government, as out of total revenue of Rs 854 billion, the federal transfers would amount to Rs 654 billion, which is 77 percent. It means that the province of Sindh would collect only 24 percent from its own resources after repeated claims of collecting 80 percent of country's revenue.

The share from direct taxes is Rs 216 billion and the indirect taxes amount to Rs 352 billion while taxes collected from the services as well as goods amounts to Rs185 billion. This is quite embarrassing, as all imports by sea are cleared at the Karachi sea port. All the clearing agents pay GST to the Sindh Revenue Board. Similarly, all the financial institutions and airline offices are also headquartered at Karachi. Collecting such a small amount of taxes does not make sense and it simply shows the lacklustre conduct of the fiscal managers there, said experts.

The situation in KP is slightly different, as it has limited space for industry or services due to its peculiar strategic location. With this caveat, it is still be relevant to look into their profile of revenue receipts. Out of the federal transfers of Rs 425 billion, indirect taxes will share Rs 222 billion whereas Rs 366 billion will be accrued from direct taxes. This situation is similar to the other two provinces. The own receipts of the KP province will amount to Rs 45 billion out of which the direct taxes will amount to only Rs 3 billion. Major share would be collected through indirect taxes which amounts to Rs19 billion.



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