The NWFP government is finding it difficult to mobilise provincial revenue and its declining volume is increasing its reliance on external resources.

Trends of both tax and non-tax revenue collections during the last four years show a gradual drop in the contribution of Provincial own Receipts (PoR) to the overall revenue.

In the financial year 2002-03, the provincial revenues amounted to Rs4.047 billion, 10 per cent of the total Rs37.039 billion revenue receipts of the province.

The PoR contribution remained stagnant during the three subsequent fiscal years at the same ratio. However, after that a steady decline was witnessed in 2005-06, when the contribution of PoR dropped to almost seven per cent of the total receipts. In 2006-07 this ratio is said to be eight per cent.

The government has pitched the PoR at Rs6.981 billion for 2007-08, which, if achieved, will not be more than the eight per cent of overall target of Rs80.579 billion.

To reduce province’s dependence on external resources and expand its own revenue base, the government has been focusing on revenue mobilisation through its multi-sectoral Provincial Reform Programme (PRP) initiated in 2003.

Under the reform strategy, the government claims to have mobilised the revenue through further tax reform, rationalising user chargers and improving tax administration.

However, critics say the revenue targets have not been met.

MPA Abdul Akbar Khan says the reform initiatives should have brought a visible change in terms of ensuring fiscal sustainability. Instead the PoR share in overall provincial revenue receipts is shrinking.

He explains that the government did not invest significantly on hydropower generation and minerals which could increase revenues.

The MMA government has increased the size of Annual Development Plan (ADP) from Rs7 billion in 2003 to Rs39 billion in 2007-08, but it is mainly dominated by the social sector uplift projects.

"We do need schools, hospitals, but real progress but fiscal sustainability could not be achieved unless we focus on exploiting natural potentials. Unfortunately, the successive and the incumbent government consider hydropower generation and mineral development as top priority areas, but their allocation under the ADP negates official claims," Mr Akbar argues. The government collects Rs200 million annually from mineral sector in the form of various user charges and fees; which can easily be increased to Rs2 billion, if prudent steps are taken. Similarly, the potential of hydropower generation through establishment of small stations is also a unique opportunity that can be utilised for expanding the PoR base, remarks Mr Akbar.

Citing the figures from the next year’s ADP, Mr Akbar says just 1.8 per cent of the highest ever ADP has been allocated for the power sector followed by merely 0.5 per cent for mineral development.

"With such low allocations, how we can develop such important sectors and reduce our reliance on external resources," questions Mr Akbar, who fears that situation in years to come will be more critical, if immediate steps are not taken to remedy the situation.

Apart from steady decline in PoR contribution to the overall revenue receipts, the government agencies are unable to increase tax and user charges collections. Under the PRP, the government was supposed to increase the PoR at a nominal rate of 15 per cent per annum..

In 2002-03 Rs4.047 billion was collected --just two per cent higher than the receipts in 2001-02.

Similarly, this increase remained at seven per cent in 2003-04, 12 per cent in 2004-05, 14 per cent in 2005-06 and 10 per cent in 2006-07.

For next fiscal year, the government has set a 21 per cent higher target at Rs6.981 billion under this head as compared to 2006-07.

The past tax collection trends however show that such a high growth is not possible because of limited tax base and declining recoveries from the non-tax revenue.

A senior official at Finance Department says collection of tax revenue may show some improvement, however, non-tax revenue will continue to remain at the lowest ebb unless structural reforms are undertaken..

He reminds that ratio of tax to non-tax revenue in 2000-01 was at 38:62, which now has declined to 53:47 in 2006-07 mainly because of lack of sufficient public investment in potential areas.

The World Bank in its NWFP Economic Report 2005 also advises the provincial government to find innovative ways to raise more resources for growth.