Policymakers have undertaken administrative restructuring in three priority areas: tax policies and tax administration, evolving China-Pakistan Economic Corridor (CPEC) industrial and agriculture programme backed by a fiscal stimulus and subsidised low-cost housing.

Success in these critical areas can help achieve a turnaround in the economy.

In a bid to promote administrative efficiency, meritocracy and effective coordination between the centre and the federating units, two independent entities namely Naya Pakistan Housing Authority (NPHA) and CPEC Authority have been set up to formulate reforms-related policies with self-defined implementation functions. To boost revenues, the government is also trying to revamp the Federal Board of Revenue (FBR).

Dwelling on the proposed changes in the tax regime, independent analysts see a major challenge to the PTI reforms agenda from measures like the harmonisation of general sales tax (GST) on services and goods. GST on goods is now collected by the FBR on behalf of the provinces although it is a sub-national subject under the Constitution. The revenue so collected is distributed on the basis of the population of the provinces. GST on services collected by the provinces is intended to be centralised.

While the provinces may have differences of their own, they are united in opposing any proposal to centralise the tax collection system

However, Punjab Revenue Authority (PRA) Chairman Zainul Abedin Saki has ruled out the possibility of creating one organisation — Pakistan Revenue Authority — in the name of the harmonisation of taxes. “If the federation and the provinces have the same tax laws and rules then that is not harmonisation,” he argued while addressing a conference on “Ease of doing business in Pakistan: a case for tax harmonisation” organised by the Sustainable Development Policy Institute (SDPI) in Islamabad on Dec 6. Incidentally, Punjab is ruled by a PTI-led coalition government.

The provinces have identified problems of overlapping of taxes, jurisdiction and multiplicity of compliance following the devolution of GST on services. Some progress has been made towards resolving these issues. Currently, a company having a business in goods and services across the country is answerable to five different authorities, including the FBR. An entity paying tax in one province might be required to pay the same tax in another and may be subjected to double the amount it is liable to pay.

Dwelling on course correction, Mr Saki recalled that in the first bimonthly meeting held a few weeks ago, the PRA decided for a single return and negative list to resolve the problem of origin and destination on a sector-wise basis.

By February 2020, the Sindh Revenue Board (SRB) will complete its research on the economic side of the negative list issue. The sub-federations will move towards the negative list in the next budget. They plan to head towards a single return on a sector-by-sector basis by the first quarter of the next fiscal year, starting from the telecom sector. As these two projects move forward, the PRA chairman assured that a number of problems would be automatically resolved.

Mr Saki also emphasised the need for defining the harmonisation of taxation because it was a multi-faceted issue, which involved legal, administrative and functional challenges. All provincial revenue and tax authorities have different rules and procedures which, he added, can be harmonised and solutions be identified through effective collaboration among the provinces and the federation. Some experts speaking at the SDPI conference urged the government to decentralise, devolve and delegate tax administrative functions to the district level.

While the provinces may have differences of their own, they are united in opposing any proposal to centralise tax collection, which falls in their jurisdiction. Addressing the Senate Standing Committee on Petroleum, Balochistan Chief Minister Jam Kamal Khan Alyani said his government was enacting laws to take maximum benefit from constitutional powers granted through the 18th Amendment. He said his government was firm on its insistence that the rights of Balochistan be protected. So far this economically backward and ill-governed province has not been able to benefit as much from the 18th Amendment and the 7th National Finance Award (NFC) Award as Punjab and Sindh.

A better approach will be to devolve the collection and distribution of taxes on the basis of constitutional rights and responsibilities of the federating units and local governments. To help backward regions catch up with developed areas, their share in the NFC Award should be further enhanced and the ratio of the distribution of resources on the provincial population basis should be proportionately reduced.

On the expenditure side, the federal government has reportedly informed the IMF that it is engaged with sub-national governments to pass on responsibilities to them that include contributions to higher education, health, social protection, agricultural subsidies and regional public infrastructure investment. The provinces need to take over responsibilities entrusted to them under the 18th Amendment.

But not so prudently, the provinces have been made to forgo their uplift plans to provide a huge sum of Rs202 billion to the centre in the first quarter of this fiscal year. This is against the annual target of Rs423bn to meet the year’s fiscal deficit ceiling set by the IMF. Simultaneously, Islamabad has stepped up federal development spending to meet this year’s budgetary target of Rs701bn.

The steering committee headed by the FBR chairman to revamp the FBR’s administrative structure will also determine whether the proposed Pakistan Revenue Authority should be an attached department of the federal government or a semi-autonomous or completely autonomous body.

Earlier, the federal government’s efforts to separate policymaking from tax administration were frustrated. Exhausted by various past reforms, FBR officials are offering resistance to further administrative restructuring. The outlook is currently hazy.

In the domain of federal and provincial coordination, for example, the mandate given to the CPEC Authority is also creating confusion. It will set its own policy, rules of business and report directly — and even submit its annual report — to the prime minister. According to the current practice, autonomous bodies and attached government departments report to the federal government, cabinet and, in some cases, the Senate and the National Assembly.

The authority has been tasked to “ensure inter-provincial and inter-ministerial coordination for CPEC-related policies” duplicating functions of institutions such as the Council of Common Interest, Planning Commission and Ministry of Interprovincial Coordination.

As the Planning Commission coordinates economic policies, independent analysts wonder whether there will be a separate CPEC industrial policy and a non-CPEC industrial policy.


Published in Dawn, The Business and Finance Weekly, December 16th, 2019



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