Heavy reliance of provinces on their share in federal taxes to meet expenses continues as the four federating units collectively raised only Rs19 billion in taxes from July to September.
Taxes collected by the provinces could only meet 1 to 11.5 per cent of their total expenses, show finance ministry documents.
Sindh managed to meet 11.5 per cent of its total spending through tax revenues, the highest among all provinces, while Balochistan could finance only 1 per cent of its expenses through tax revenues, the lowest among all the federating units.
Total provincial expenses stood at Rs255.8 billion during July to September 2011, of which 82 per cent or Rs210.5 billion was met through the share of provinces in federal revenues. The remaining was met by either non-tax revenues or federal loans and grants.
“Provincial tax revenues are negligible due to poor collection of agricultural tax and stagnant rates of property and motor vehicle taxes,” said Mian Younis, an expert in provincial taxes.
Younis, who had also served in the finance ministry, said that tax collection by provinces can improve to a great extent provided they improve their management and streamline collection on services.
Under the seventh National Finance Commission (NFC) award, the federal government increased the share of provinces in the federal pool of revenues from 48 per cent to 57.5 per cent. This year, the provinces are expected to get Rs1,203 billion as their share in federal taxes, 20.6 per cent higher than last year.
The four provincial governments last year got Rs997.8 billion out of the federal divisible pool, states the Budget-in-brief 2012 document.
This has further consolidated the federal fiscal space and the finance ministry is now exploring avenues to raise resources through non-tax measures, taxes not shared with the provinces. Currently, petroleum levy and profit of the State Bank of Pakistan are two major sources of non-tax revenues. The federal government recently levied gas development cess to raise Rs34 billion this year as a non-tax measure.
Sindh’s tax collection rose 65% to Rs8.92 billion during July to September compared with Rs5.4 billion in the corresponding period last year. Under the head of “other”, the provincial government collected Rs6.3 billion, which was Rs3 billion or 90 per cent higher than last year.
In other’s category, the collection of sales tax on services has been declared, said an official of the provincial finance department.
The provincial government’s tax collection met 11.5 per cent of the total quarterly expenses that stood at Rs77.5 billion. The Sindh government met 72 per cent of the spending requirements from its share in federal taxes as it got Rs55.2 billion out of the federal divisible pool.
Punjab collected only Rs9.2 billion taxes as against Rs8 billion in the corresponding period last year, showing 12.5 per cent growth. It met 7.9 per cent of expenses from its tax revenue collection.
In three months, the provincial government’s total expenses shot up to Rs117 billion. Punjab got Rs94.3 billion from the federation as its share in federal taxes that bridged 81 per cent of the total financing gap.
Khyber-Pakhtunkhwa generated only Rs898 million against Rs871 million in the corresponding period of last year. It got Rs33.2 billion from the federation as its share in the divisible pool which helped meet 78 per cent of the expenses. The provincial government’s total expenses stood at Rs42.5 billion while its tax collection met 2.7 per cent of the expenses.
The Balochistan government could generate only Rs196 million in taxes from July to September against Rs237 million in the corresponding period last year. The collection met only 1 per cent of the spending requirements and it received Rs27.9 billion from the federation.
The provincial government’s total expenses stood at Rs18.8 billion and it returned Rs14.4 billion to the federation as surplus.
Published in The Express Tribune, December 8th, 2011.
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Shahbaz,
Rather than just report the dull facts and numbers, some analysis would be helpful.
Specifically, is this not the fatal flaw in the Award? The Provinces got billions without any iron-clad commitment on their part to RAISE their own revenues and either balance their budgets or earn surpluses every year.
Indeed, a path of fiscal balance/surplus should have been worked out in each case. Failure to adhere to the path should automatically lead to a penalty by with-holding releases to the extent of the deviation/short-fall.
Just take one item, namly, tax on property (both private and commercial) value it correctly (at current market price) and tax it at a modest rate (say 5%) but one that is linked to the CPI, and all the provinces will have a surplus budget.