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LAHORE: Pointing to weak performance of the provincial boards of revenue, the Institute of Policy Reforms (IPR) has urged the governments to play their role for improving collection.

At present, agriculture income tax yields a paltry Rs1 billion, while the sector has a share of 21 per cent in gross domestic product (GDP), said an IPR report on Tuesday.

Tax yield could increase 2pc of GDP by simply indexing assessment to current agriculture prices. Effective penalty for non-compliance will also help. Provinces must increase tax collection on urban property and services, the IPR said.

The report recommends capital gains tax on property and rationalisation of import duties besides specific measures to enhance tax base by bringing in more individuals and companies in the tax net.

“Federal revenue lost to exemptions and incentives is high. Continued tax holidays for Independent Power Producers (IPPs) and under-recovery of capital gains on securities alone account for Rs100 billion. Tax deduction allowances amount to another Rs100bn. The government must ensure that these are targeted for the most productive sectors,” the report said.

The government can increase tax-to-GDP ratio by four to five percentage points. This is especially possible by improving tax administration and enforcement.

Industrialisation: The report also sought introduction of long-term project financing at fixed rates to promote industry. The report said that the industry has seen unusual slowdown in recent years which caused unemployment.

It asked the State Bank to introduce incentives for banks to set up a window for private capital investment.

The report recognises improvement in economic stability under an IMF programme as balance of payments, fiscal deficit and inflation are under control, but urges the government to focus on growth while ensuring robust stability.

An expansionary monetary policy would lead the economy out of the morass of the past eight years. The growth strategy centres on three key areas: increase in exports, industrial revival and public investment.

Despite stagnant exports, rupee has remained overvalued by about 20 per cent. The high value of the rupee came at a most inopportune time of slowdown in world trade. In fact, this was when many developing countries lowered value of their currencies. This placed exporters at a disadvantage.

Scarce public investment has been a chronic problem. In addition, the inadequate funds available are often used for prestigious projects without desired economic impact.

It recommends increase of public programme to at least 5pc of GDP instead of 3.8pc which will also provide additional funds needed for CPEC.

The report recommends reduction in the number of federal ministries.

Published in Dawn, February 10th, 2016

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