ISLAMABAD: As part of the 7th National Finance Commission (NFC) Award, all the four provinces were supposed to improve tax collection, but they fell behind their commitment to collect tax on farm income and real estate to improve the country’s falling tax-to-GDP ratio.

It was agreed in the award that all the provinces will supplement centre’s efforts to increase the tax-to-GDP ratio to 13.60 per cent by 2012-13, but it actually ended up at 9.6pc for the same year, showing a dismal performance of the revenue realisation, suggested a report on Second Biannual Monitoring on Implementation of the NFC Award.

Moreover, nothing has happened on this account. But provinces are getting their enhanced share from the federal divisible pool as entitled under the 7th NFC award as against their commitment to increase tax-to-GDP ratio to 15pc by the terminal year 2014-15, which seems to be missed.

The report was compiled to review the tax measures taken by provinces for broadening of the tax base, and revenue by the ministry of finance. It was recommended in the award that provinces would initiate steps to effectively tax the agriculture and real estate sectors.

The land-holding elite in the four provinces never miss an opportunity to grab a seat of power, but at the same time they feel no shame on sitting on acres of agricultural land and earning millions from the harvest and yet paying nothing in taxes.

On agriculture income tax, the only province which took measures was the Khyber Pakhtunkhwa, while agriculture income tax was being harmonised in consultation with stakeholders in Sindh.

The report did not give any details about harmonisation and broadening of agriculture tax base in Sindh. The report was also silent on measures taken in the last years regarding agriculture income tax in the provinces of Punjab and Balochistan.

In the recent past, there was a lot of debate on taxing agricultural income, but the provincial governments’ position was unclear and there were no concrete plans for taxing the income of landlords and property owners for generating additional revenue. But for the large part, the provincial governments were to be blamed for their ill-preparedness.

As per the report, Khyber Pakhtunkhwa took several measures for broadening of the agriculture tax base. As per new measures, all those persons who have declared agriculture income in their tax returns filed for the tax year 2013 received from the FBR were brought under the agriculture income tax in Pakhtunkhwa.

Moreover, filing of agriculture income tax return was made mandatory for owners and cultivators of 12 ½ acres or more of cultivated irrigated land, 25 acres of cultivated un-irrigated land or mature orchard having net income more than Rs100,000.

Earlier, the return filing was mandatory in case of landholding in excess of 50 acres irrigated and 100 acres un-irrigated. But the recent Pakhtunkhwa government brought the benchmark to the lowest level. Similarly, all such persons have been asked to self assess their agriculture income as well.

According to the report, comprehensive instructions have been issued for activities from crop inspection, assessment of agriculture income, filing of return and issuance of tax demand.

As a result of all these measures, filing of agriculture income tax in Pakhtunkhwa edged up to 4,799 from earlier 112 persons.

Published in Dawn, October 24th, 2014