World Bank sets targets for Punjab

Report says province needs to enhance cooperation between tax authorities

LAHORE:

The Punjab government needs to enhance cooperation between the three provincial tax authorities to facilitate compliance, tackle tax evasion and reduce the cost of tax collection in a bid to capture its potential tax revenue, stated a World Bank report.

“Tackling these issues by using data integration, third party data links and audits can significantly help the province extend its collection capacity of Own Tax Receipts by up to Rs400 billion, which currently accounts for only 0.8% of provincial estimated economic outlook,” it said.

The Punjab Finance Department will have to implement World Bank’s proposal in its newly sanctioned loan of $554 million under Punjab Resource Improvement and Digital Effectiveness (PRIDE) Program.

Under this program, scheduled to run from 2021 to 2026, the province has been given a target to increase its value of Own Source Tax (OST) revenue to Rs300 billion by the end of this program. Punjab’s OST currently stands at Rs191 billion. The province has been asked to increase the number of registered services sales taxpayers under PRIDE to 145,000 from the current 82,285.

Similarly, a target of increase in registered taxpayers who filed sales tax on services return in the previous year has been set at 77,500 from the current number of 23,947 tax payers. Other initiatives, which the provincial government has to introduce under the program, include database integration in tax administration.

The bank said that at present, no linkages among Punjab tax authorities’ databases or with third parties exists though Punjab Revenue Authority (PRA) and Federal Board of Revenue have signed memorandum of understanding for sharing data.

By the end of this program, Punjab’s tax authorities such as Punjab Revenue Authority, Board of Revenue and Excise and Taxation department should have access to shared data links to third parties. To do this, enhancing cooperation is the first step.

Other steps outlined by the World Bank include streamlining tax instruments by abolishing some minor taxes with low revenue potential and combining the collection of similar taxes, which would reduce compliance costs for taxpayers and administrative costs for tax authorities.

Simplifying key business processes for tax administration and automation like taxpayer registration, payment, arrears monitoring and refunds, appeals, litigation and feedback systems should be done by 2026.

In addition, enhanced capacity for revenue generation from real estate like complete properties market valuation studies for six cities using modern valuation methodology should be completed so the province may know the actual value of its non-tax revenues, it said.

The report added that the government of Punjab has made significant progress in public financial management (PFM) reforms.

Based on the provincial government’s Public Financial Management Reform Strategy (PFMRS) for 2015-2020, the Punjab government expanded the sales tax on services’ base and increased collections from Rs43 billion in FY13 to Rs106 billion in FY18.

It also completed digitisation of urban immovable property tax (UIPT) records with the addition of more than one million new properties to the tax net, automated property tax invoice system and rural land records and digitised stamp duty payments.

The report further said that economic fallout from the pandemic is, however, expected to reduce the province’s OST, leaving it with fewer resources to finance its emergency response and to sustain the already modest investment in human capital and infrastructure.

Published in The Express Tribune, November 15^th, 2020.

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