The study entitled "Public Financial Management and Governance" says that recent studies of the World Bank estimate a tax gap of about 75 percent between the current receipts and potential of taxes collection. It said that an analysis of current Punjab GSTS law identifies a potential of Rs198 billion (including an estimated Rs47 billion credit for federal input adjustment). The telecommunications, banking/insurance, business services, and construction sectors have the largest potential for tapping additional tax revenue.
The tax gap may be reduced by: i) refining the GSTS law, in particular by improving the definitions of taxpayers and taxable activities; ii) eliminating exemptions for certain services in other than taxable sectors (especially in telecommunications, personal services, and restaurants) and reducing the overall tax rate; iii) moving to the negative list of services to expand the tax net; and iv) by improving tax administration and tax payment facilitation ie integrate databases across relevant government agencies, and development of a multi-year capacity development plan for the Punjab Revenue Authority (PRA).
Referring to the Urban Immoveable Property Tax (UIPT); the report points out that "based on market-based values (rents and capital value) of surveyed properties in 5 districts of Punjab, the estimated potential under the current law, retaining all exemptions with new valuation rates, is Rs29.9 billion. With an assessment ratio of 0.75, this estimate increases to Rs34.5 billion. To this end, comprehensive tax reforms (in phased manner) would be required, such as the following: i) reformulate valuation tables to take account of periodic information from market values; ii) review and systematically remove exemptions to broaden the tax base; iii) gradually improve the overall assessment ratio from the current low ratio of 0.36 to 0.65; iv) restore progressively of the tax by removing implicit exemptions for large sized properties; v) institute higher valuation of large sized property units; vi) restore equity features of the tax by removing the implicit exemption of self-occupancy; vii) institute tax administration reforms including appropriate valuation of commercial and industrial properties to be applied by an independent valuation agency; viii) introduce tax facilitation measures and a robust communication strategy; ix) computerize tax rolls in all districts; and x) develop departmental systems and capacities to administer the tax.
Property transfer taxes: The estimated total revenue from property transfer taxes is Rs90.15 billion, which includes Rs66.03 billion from stamp duty, and Rs24.12 billion from capital value tax (CVT). To cover the tax gap, it has been recommended to further develop annual valuation tables to capture diversity in properties, and reduce differential between official values and market value. Regular market/sales assessment ratio studies should be carried out to update valuation tables in both urban and rural areas.
An integrated database of properties (between Board of Revenue and Excise & Taxation department) should be developed, and a survey of properties should be carried out to complete the tax rolls. To facilitate taxpayers, digitized collection mechanisms could be introduced. In parallel, the government could consider establishment of a technical valuation unit to conduct analysis based on latest market values, and build capacity of valuators and other related staff.