KARACHI, April 23: The World Bank (WB) is prompting Pakistan to transfer income tax on agriculture from the provinces to the districts to raise revenues.

Although agricultural income-tax has finally been introduced, say the WB officials but they are dissatisfied that “its yields remain small.”

A World Bank report has argued that “a higher rate of agricultural income tax might be more acceptable if it were levied by the districts rather than the provinces.”

Agriculture is by far the largest sector of the national economy, with a share of a quarter of the Gross Domestic Product. Farm income tax has failed to contribute to the annual nominal tax target of Rs2 billion set for the last fiscal.

It is a major hurdle in widening the tax net and in ensuring equity, as the almost entire income-tax collection of Rs125 billion is shared by trade, industry and the salaried classes, sectors other than agriculture.

Whatever arrangements are ultimately introduced for inter-governmental fiscal relations, the WB Pakistan Policy Development Review (PDPR) stresses that there is likely to be a need to allow local authorities to raise more revenues for themselves. Agricultural income tax could be one area for districts to increase their incomes.

While placing much focus at the policy level on poverty reduction, the government has run into snags at the execution level. In the first half of current fiscal, the spending on social sector has declined by Rs16 billion. The National Finance Commission has yet to give an award that would enable the district governments to move towards financial autonomy.

Similarly, the Benami Law has become a hurdle in land reforms. The WB states that the Benami Law which allows individuals to register their assets in the name of someone else and thus impedes efficient administration of everything from taxes to land reform, has not been repealed.

In a number of areas, the WB notes that the government does not have a coherent programme to address important issues. One of these concerns is devolution from the federal government to the provinces. This was to happen in parallel to the active programme to devolve powers from the provinces to the districts.

The fiscal relations between the different levels of government remains undefined so far, says the PDPR report.

Similarly, land markets are impeded by poor registration and legal arrangements for transfer, thus creating obstacles both for land reform and land consolidation that might combat land fragmentation.

And the institutional reforms that were intended to devolve responsibility for water resources to subsidiarity principle have moved at a snail’s space, says the report.