PUNJAB’S budget for 2024-25 provides much fodder to those who believe that the increased provincial share from the tax pool resource under the NFC arrangement has stripped the federating units of their drive to boost their own tax revenues. The Rs5.4tr budget announced by the Maryam Nawaz government on Thursday plans to collect nearly Rs472bn — up by nearly 19pc from original estimates of Rs393.5bn for the outgoing year — in direct and indirect taxes during the next fiscal. That Punjab’s tax target is less than 0.4pc of the size of the economy reveals its lack of motivation to raise its own tax revenues, as Pakistan’s largest province is flush with cash owing to a whopping increase of 36pc in its share from the federal divisible pool. With the country struggling to lift its abysmally low tax-to-GDP ratio of below 10pc to 13pc in the next three years, Punjab, which accounts for more than half the economy, is expected to do better than that.

Therefore, it is disappointing to see the new budget leave tax rates on income from agriculture unchanged and far below the normal rates. It is important to bring agriculture tax rates on a par with normal personal income tax rates to plug this loophole for tax evaders. Likewise, the province has also stopped short of effectively taxing immovable property despite several studies that the latter could be a major source of revenue. But who would want to make unpopular decisions when the rulers have more than enough cash in their coffers to finance large infrastructure schemes, or hand out free laptops to the youth, distribute interest-free loans among farmers, give free solar panels and subsidise their supporters’ housing loans? Our provincial tax collection is less than 1pc of the country’s GDP, compared to 5-6pc in India. Increasing the tax-to-GDP ratio is not possible without effective provincial contribution. Being the largest province, Punjab should have taken the lead.

Published in Dawn, June 15th, 2024