ISLAMABAD: As provinces are finding it difficult to achieve the revenue collection target set in 2010, the National Finance Commission (NFC) has warned that it would be impossible to achieve the 15pc tax-to-GDP ratio in the terminal year of the award (2014-15), if the provinces continue with the same trend.
According to the second biannual monitoring report on the implementation of NFC award, Punjab, Sindh and Balochistan could not achieve the revenue collection target set by the NFC since July 1, 2010, the first year of the award.
These provinces remain far behind in their quest for achieving the target set by the NFC of 15pc tax-to-GDP ratio. The report was submitted by Finance Minister Ishaq Dar to the just-concluded sessions of Senate and the National Assembly this month.
Against the proposed target of 42.14pc of tax-to-GDP ratio, Punjab was able to gain 30.2pc; Sindh’s revenue growth was minus 17.4pc against the target of 36.44pc and Balochistan recorded minus 5.0pc growth against the target of 1.03pc.
Khyber-Pakhtunkhwa was, however, able to achieve 5.9pc growth against the recommended tax-to-GDP growth of 3.94pc, a target projected for the same period.
The report recommended that the federal and provincial governments should streamline their tax collection systems to reduce leakages and increase their revenues through efforts to improve taxation to achieve the target set by 2014-15, the final year of seventh NFC award.
The report says that Sindh government has established Sindh Revenue Board and started collecting GST on services by itself. Punjab has created the Punjab Revenue Authority as a major reform with the mandate to administer and collect sales tax on services.
KP has also developed a mechanism for collection of GST, while Balochistan maintains status quo and FBR is still collecting GST on its behalf.
Explaining the measures of fiscal discipline in provinces, the report notes that development funds are being released in Punjab on biannual basis to match transfer of development funds with available fiscal space to the Punjab government.
Release of development funds was being strictly monitored along with actual expenditure against the released amounts to avoid unnecessary parking of funds.
The Khyber-Pakhtunkhwa government has committed not to go in the overdraft from the State Bank and the cash balance position of the provincial government with the SBP is satisfactory.
The Balochistan government is the only province which has retired all domestic debt, including cash development loan, and blocked accounts with the SBP and closed its cash balance in credit on terminal of fiscal years.
The report says that the federal government has decided to facilitate provinces to harmonise taxation on agriculture income, as agriculture income tax collected by the provinces are very negligible despite the fact that agriculture sector is one of the major contributors of the GDP.
The main objective of the exercise is to properly explore the potential of tax collection from agriculture and bring it at par with other sectors.
The NFC award had recommended that provinces would initiate steps to effectively tax the agriculture and real estate sectors.