The paper talked about improving incentives for tax revenue mobilisation and co-ordinated administration. A stronger incentive-based national framework for tax revenue mobilisation is needed to avoid over-taxation of compliant taxpayers and facilitate a co-ordinated expansion of the fiscal space for much-needed development and social spending. A national consensus with specific revenue targets and mechanisms to enforce their attainment could help overcome co-ordination and political economy issues with respect to policy and administrative aspects of taxation in sensitive areas, such as agriculture and real estate. In addition, improved co-ordination, both vertically (eg in common initiatives to widen the tax net in areas of joint tax jurisdiction) and horizontally (eg in harmonising regulations or implementation of GST on services) will be important to balance the need for increased fiscal revenue and business promotion. To this end, a national tax commission could be established under the Council of Common Interests (CCI).
It said that the 7th NFC Award has assigned the general sales tax (GST) on services - a buoyant tax base - to the provinces, in addition to their other tax assignments, which include agricultural income tax, taxes on immovable property, capital gains tax, estate and inheritance tax, motor vehicle tax and charges on services such as water supply, drainage and lighting. Despite significant taxing powers, provinces have collected only 8 per cent of the national fiscal revenue in 2015-16.
Following the 7th NFC Award, most provincial authorities have established own revenue authorities tasked with the collection of GST on services. These authorities have had some success: tax bases were increased to include a wider range of previously untaxed services and improving administration. As a result, collection has nearly doubled since the NFC Award, it said.
At the same time, revenue mobilisation from other promising bases such as agriculture and real estate showed marked improvement relative to GDP. Tax administration at the provincial level remains fragmented, often with different agencies collecting various taxes. Diminished incentives to expand tax bases following the allocation of higher revenue through the 7th NFC Award may play a role. Building on the success of revenue authorities and bringing other tax collection responsibilities under "one roof" would help reduce the cost and increase effectiveness of administration. Alongside, building co-ordination and information-sharing mechanisms, both across provinces and with the FBR, will be important to make use of complementarities in tax administration (eg a nationwide cadastre of real estate) and promote easier compliance, as well as reduce confusion and resolve disputes in taxation of, paper added.
Provincial revenue growth was substantially below expectations, owing both to challenges at the federal level and the provinces'' own tax efforts. Reflecting changed incentives and tax reform challenges, federal revenue increase initially was slower than expected and over time became more skewed towards non-shared revenue. Meanwhile, provinces'' own tax efforts seemed to have focused on improving the collection of GST on services. However, tax collection from other key potential sources (such as real estate and agriculture) largely remained flat in per cent to GDP. Having jurisdiction over agriculture and services - which account for 80 per cent of Pakistanis GDP - provinces collected a mere 1.3 per cent of GDP in taxes in 2015-16, it added.
Copyright Business Recorder, 2017