All provinces, except Sindh, fail to boost tax revenues

Increase reliance on NFC transfers to meet their expenditures

ISLAMABAD: The share of provincial taxes in total revenues has slipped to only 11% in the first quarter as all the federating units, except for Sindh, could not boost revenues, increasing their reliance on National Finance Commission (NFC) transfers to meet expenditures.

From July through September of the current fiscal year, the four provinces cumulatively collected Rs88.6 billion in taxes, higher by only Rs1.7 billion or 2% over the same quarter of previous year, according to a summary of consolidated federal and provincial budgetary operations.

The performance of provincial tax authorities was worse than the Federal Board of Revenue (FBR), which managed to achieve a nearly 8% growth in revenues.

This reduced the provincial tax contribution to the total revenues from 15% to just 11%. The rest of the provincial revenues came from federal transfers under the NFC Award, provincial non-tax revenues and federal loans and grants.



The declining figures of provincial taxes for the July-September quarter of FY19 have underlined the need for a revamp of the provincial tax regimes. The provincial tax collection was 0.22% of gross domestic product (GDP), which was far lower than the potential.

The provincial governments have the right to collect general sales tax on services, provincial excise and stamp duties, motor vehicle taxes and income tax only on agriculture, according to the constitution.

The provincial share in federal revenues has jumped to Rs663 billion or 84% of their total revenues in the first quarter, partly due to delayed transfers by the federal government. In July-September 2017, the provincial share in federal revenues was equal to 74.4% of their total revenues.

In June this year, the finance ministry blocked the release of the last tranche under the NFC Award to the provinces aimed at restricting the budget deficit to 6.6% of GDP. Had the money been timely transferred to the provinces, the budget deficit could have gone up to 7.1% at the end of last fiscal year.

Like the federal government, the provincial current expenditures also registered a double-digit growth. The provincial governments cut their development spending to Rs55.7 billion - 41.7% less than first quarter of the previous year.

The steep decline in the federal and provincial development spending is likely to adversely affect economic growth in the current fiscal year, which is now projected to remain at around 4%.



Punjab

The Punjab government collected only Rs42.6 billion in taxes in the first quarter, which was lower by Rs2.4 billion or 5.3%, according to the fiscal operations summary.

Due to this, the share of tax collection in total revenues dropped from 16% to only 10.8%. The Punjab government received Rs326 billion from the federal government under the NFC Award, higher by 63%. The provincial government saved Rs126.4 billion from its budget. The provincial government’s collection on account of sales tax on services dropped 8.7% in the first quarter.

Its total expenditures increased to Rs264.4 billion but development spending was slashed by 54% to only Rs30.3 billion in the quarter.

Sindh

Sindh was the only province that registered a 10.8% growth in provincial taxes in the first quarter. The provincial government collected Rs40 billion in taxes, which constituted nearly one-fifth of the total revenues. It collected Rs20.6 billion in sales tax, which was higher by 10%.

Sindh received Rs163.7 billion as its share under the NFC Award, higher by 53.7%, suggesting that the provincial government suffered from the blockade of funds by the finance ministry. Out of Rs163.7 billion, the provincial government saved Rs64 billion.

The Sindh government’s total expenditures increased to Rs139 billion but its development spending decreased to just Rs13.2 billion during the July-September quarter.

Khyber-Pakhtunkhwa

The provincial government generated a mere Rs4.1 billion in taxes through its own efforts which was equal to 3.6% of the total revenues. The K-P government received Rs107.7 billion from the centre under the NFC Award, higher by 62.6%. The provincial government generated a cash surplus of Rs29.4 billion.

The provincial government’s total expenditures stood at Rs86.6 billion, an increase of 30%. But its development spending dropped to Rs10.8 billion, which was lower than the first quarter of last year.

Balochistan

The province generated a meagre sum of Rs2 billion in taxes during the July-September quarter, which constituted just 2.8% of the total provincial revenues. The largest province in terms of area received Rs65.6 billion under the NFC Award, which was higher by 18.5%.

Balochistan is the only province which gets its share in the NFC on the basis of projected federal revenue collection instead of actual collection.

Provincial expenditures increased 13% to Rs43 billion and the government generated a cash surplus of Rs26.6 billion.

Published in The Express Tribune, November 25^th, 2018.

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