ISLAMABAD: On completion of its five-year constitutional term, the National Finance Commission (NFC) has reported to the parliament that the federal and provincial governments had miserably failed to achieve targeted revenue growth.

Presented to the National Assembly by the NFC Secretariat on Wednesday, the NFC report on January-June 2015 period revealed that neither the federal government, nor any of the provinces could follow yearly targets to increase tax-to-GDP ratios.

The report said one of the main responsibilities entrusted to the federal and provincial governments through 7th NFC award was “achieving 15 per cent tax-to-GDP ratio by the terminal year of the award i.e. 2014-15. For achieving this target, a path has been recommended by the NFC for both federal and provincial governments”.

Under article 9 of the NFC approved in 2009 required the federal and provincial governments to streamline their tax collection systems, reduce leakages and increase tax-to-GDP ratio by 15pc. “It was also recommended that provinces would initiate steps to effectively tax the agriculture and real estate sectors”.

Overall tax-to-GDP ratio stood at 10.70pc in 2009-10 that was targeted to grow to 11.75pc in 2010-11, followed by 12.8pc a year later, then 13.60pc in 2012-13, 14.3pc in 2013-14 to reach 15pc by final year (2014-15) of the NFC term.

The federal government was required to begin its tax-to-GDP ratio from 10.2pc and gradually take it up to 13.85pc by 2013-14 while the provincial governments were to increase their contribution from 0.5pc of GDP to 1.15pc in five years with annual increase of 0.10-0.15pc.

The NFC reported that both the federal and provincial federal governments could increase tax-to-GDP ratio by a paltry 0.3pc to 10.4pc by terminal year of 2014-15 — far behind NFC target of 15pc. The overall tax-to-GDP ratio had stayed below the starting point of 10.7pc throughout the five years.

In fact the centre’s tax-to-GDP ratio fell below its take-off point of 10.2pc. The NFC report approved by all the federal and provincial finance ministers said that centre’s tax-to-GDP ratio amounted to 9.3pc in 2013-14 and slightly improved to 9.7pc.

The cumulative tax-to-GDP ratio of the four provinces also stood at 0.7pc of GDP in 2013-14 and 0.8pc on the conclusion of 2014-15. This too was far behind the NFC target of 1.15pc by 2014-15.

Not only this, the NFC also reported that while Punjab increased its revenue collection by 1.6pc between 2013-14 and 2014-15, Sindh stood out with 18.6pc increase in its tax collection during these two years.

Khyber Pakhtunkhwa and Balochistan performed miserably in their tax collection. The KP’s revenue collection dropped by 2.6pc to Rs11.37bn in 2014-15 from Rs11.68bn a year before. Balochistan was even worse with drop in tax collection by 7.2pc in two years.

The report said only the Punjab government maintained revenue surplus under a decision of the Council of Common Interest in July 2013 to help the federal government control budget deficit and was paid Rs1.7bn as interest on this saving.

The report also said the Federal Board of Revenue (FBR) had collected Rs2.590bn as provisional collection during July-June 2014-15, showing a growth of around 15pc over the corresponding period of previous year. The direct taxes grew by 17.8pc, sales tax by 9.2pc, federal excise by 7.5pc and customs by 26.1pc.

It said recent decline in prices of petroleum products and other commodities had adversely impacted the tax revenues. During July-August 2015-16, the FBR collected Rs327bn against Rs303bn in the corresponding period of a year before.

In order to increase tax-to-GDP ratio to 15pc in the next few years, the FBR has now devised a comprehensive reform programme and strategy to gear up its revenue mobilisation efforts through broadening of tax base, rationalisation of concessionary regime and withdrawal of tax-exemptions apart from strengthening of tax audit, customs modernisation, taxpayer facilitation and improvement of human resource.

Published in Dawn, January 7th, 2016