June 14, 2014
By Kazim Alam
KARACHI (Tribune): It seems the Sindh government has finally realised that its pitiful record on the provincial tax collection is hardly sustainable.
While announcing the establishment of a dedicated Tax Reform Unit during the Sindh budget speech on Friday, Chief Minister Syed Qaim Ali Shah said the provincial government aims to increase its tax receipts from Rs91.3 billion to Rs200 billion over the next three years.
Estimated provincial tax receipts amounting to Rs107 billion constitute merely 15.9% of the total receipts of the province projected for 2014-15. In other words, the Sindh government finds itself largely dependent on federal transfers of money, which constitute as much as 70.5% of the total provincial receipts that are projected to be Rs672.1 billion in the next fiscal year.
As if the extremely low share of the tax receipts in the overall provincial receipts was not embarrassing enough, a quick look at the breakdown of Sindh’s tax revenues reveals a sharp tilt towards indirect taxation.
Indirect taxes, which are regressive by nature, form as much as 90.7% of the total projected provincial tax receipts for 2014-15. Direct taxes, which include the tax on agriculture income, amount to just Rs9.9 billion, or 9.2%, of the total provincial tax receipts.
In the absence of resource mobilisation at the provincial level, especially by means of direct taxes, it is least surprising that the Sindh government repetitively complains about the ‘highly unpredictable’ federal transfers every year.
This begs the question as to why the provincial government is so unconcerned about increasing its tax revenues through direct taxation.
According to Sindh’s former (caretaker) minister for finance Syed Shabbar Zaidi, the provincial government does not want to collect taxes simply to protect the vested interests.
“Tax is an urban issue in Pakistan. Its collection is limited to big cities only,” he told The Express Tribune in a pre-budget interview.
Indeed, the amount collected as the tax on agriculture income, which was imposed in the province back in 2002, is shockingly low. The provincial government had initially estimated the tax on agriculture income to be Rs468.6 million in 2013-14, but revised it to Rs426.5 million later on, down by almost 9%. The budget estimate for the tax on agriculture income in 2014-15 is only Rs512.1 million.
It means the tax target for agriculture income for the next fiscal year comes around 0.4% of the total projected provincial tax receipts.
Quite tellingly, the amount of Rs512.1 million is considerably lower than the non-tax receipts of Rs546 million that the government expects to receive in 2014-15 through fees drawn by government’s educational institutes, including secondary and intermediate schools, technical colleges and universities.
Furthermore, a quick review of the estimates of expenditures reveals that the government has promised agriculture subsidies, which exclude administration expenses, amounting to a staggering Rs3.1 billion in 2014-15.
With heavy subsidies and near-absence of taxation on the income on agriculture, no wonder the provincial government is going to rely on indirect taxation by means of sales tax on services (Rs49 billion), provincial excise tax (Rs3.8 billion), stamps duty (Rs9.8 billion) and motor vehicle taxes (Rs5.1 billion).
“It’s been 12 years and the Sindh government has yet to establish an SRB-like, dedicated body for the collection of the tax on agriculture income,” Zaidi said while referring to the Sindh Revenue Board that is tasked with the sole purpose of collecting sales tax on services in the province. “Who will tax the income on agriculture if there is not even a full-time provincial secretary for this purpose?”