LAHORE: Pakistan’s provinces lack sufficient incentive to improve tax collection because of assured transfers under the National Finance Commission (NFC) award, policymakers and economists argued at a panel discussion during ThinkFest on Sunday.
Speaking at a session titled “NFC, Governance and the Crisis of Money”, Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial said provincial performance in collecting key taxes remained “poor”, despite their growing share in federal revenues.
“The provinces are mainly responsible for collecting sales tax on services, agriculture income tax and property tax,” Langrial said. “Unfortunately, performance in all three areas has been weak.”
Former finance minister Miftah Ismail, who moderated the session, explained that 57.5 per cent of total federal revenues are transferred to provinces under the NFC award. In addition, the federation provides an extra 1 per cent share to Khyber Pakhtunkhwa for counterterrorism efforts and also financially supports Azad Kashmir and Gilgit-Baltistan.
Langrial highlighted stark figures to underline the problem. Of an estimated agriculture income tax base of Rs3.7 trillion, provinces collect only Rs8.4 billion. Property tax collection stands at just 0.08 per cent of GDP in Pakistan, compared with 5pc in Malaysia, 3pc in Indonesia and 2pc in India.
He also cited city-level disparities, noting that per capita property tax collection in Lahore is Rs623, compared with Rs1,276 in Chandigarh. In Karachi, the figure is Rs111, while Bangalore collects Rs11,233 per person.
While praising provinces for improvements in governance and municipal services, Langrial stressed that revenue gaps remain unsustainable and called on both the federation and provinces to rein in spending and boost collections.
Economist Savail Hussain warned that rising transfers since 2001 have not translated into better human development outcomes, except in Balochistan. He argued that Pakistan’s public finance crisis could only be resolved by making the NFC award performance-based.
Asad Sayeed, a member of the 2009 NFC, recalled that stakeholders had agreed to raise the tax-to-GDP ratio to 13.5pc by 2015, but it remains just over 10pc.
Separately, another ThinkFest session debated privatisation, with speakers questioning delays in the sale of Pakistan International Airlines and calling for greater transparency in the process.
