Additional taxes

The Sindh province is set to take an extra burden of generating Rs200 billion in the new fiscal year. As per the IMF dictates, an additional revenue of Rs400 billion has to be generated by the four provinces. Punjab has to contribute Rs175 billion, K-P Rs45 billion and Balochistan Rs20 billion. This disparity stems from differences in their tax bases. Sindh is especially under the scanner as it houses Karachi, the country's financial capital. The provinces are likely to further tap the realms of services and real estate sectors, apart from agriculture that has been widely off the hook.

The federal government at the same time is under an obligation to generate Rs700 billion to achieve the Rs1.1 trillion target in additional taxation. To what extent the provinces will be successful in meeting their tax target – which equals 0.3% of GDP – is anybody's guess. The federating units were seen struggling to implement agri tax despite repeated commitments in yesteryears. Agriculture has an effective tax rate of just 0.3% despite having a 24.6% share in the economy. Revenue generation in this sector has remained below expectations due to implementation delays and enforcement challenges – perhaps due to feudal grip over the statecraft.

The federation's biggest chunk of revenue comes from petroleum levy as the next year's target has been set at Rs1.73 trillion. This has not only compounded the growth equation as higher energy prices have stalled competitive production and given rise to inflation, which is now comfortably in double digits. This year the Centre will squeeze out an additional Rs259 billion under petroleum levy, sending the already unmanageable cost of living even higher.

Major taxations, likewise, come from GST on services, wherein the provinces have done an efficient job. Last but not least, the salaried class contributes a staggering Rs500 billion to the exchequer. In contrast, the profit-wielding real estate pools in a mere Rs68 billion, followed by retailers at Rs33 billon and wholesalers at Rs22 billion. This disparity and partisanship is in need of being addressed as we go on to broaden the tax base on rational lines.