Tax collection: myth & reality
By Huzaima Bukhari & Dr. Ikramul Haq
Life in Balochistan is in severely clenched claws of deprivation and chains of rampant poverty. More than half of the population of the province is languishing in stark poverty, live below proverbial line of poverty. Nature has been gracious enough to fill its wallet with material resources. But it still lives in solitary on peak of barren inhospitable mountain midst of a palpable ocean of material prosperity. This has yet to receive even sign of dusk. The national economy is showing positive signals after a lapse of seven years. Economic indicators are improving due to fruitful efforts but there is no trade, industrial set up to translate better economic performance for people in Balochistan and affect their lives. The province is fully dependent of federal transfers. Balochistan have a dream to one day when staring eyes, about to lose hope, will witness first ray from the end of long dark tunnel end. In pursuance of its well-being and socioeconomic goal one must not be guilty of wrongful deeds. Lest not seek to quench our thirst and satiate our hunger by drinking from the cup of bitterness and hatred. There is a need not to be drenched in despair. There is a hope—the incumbent provincial coalition government of Balochistan. It has made to realize opportunities and resources. This is the time for Balochistan to rise from the dark and desolate valley of underdevelopment to the sunlight of development and progress. The legitimate discontent in the province will not pass until there are adequate opportunities for youth languishing in pain and pangs of hunger[1].
The province [Balochistan] is fully dependent on federal transfers—White Paper issued by Government of Balochistan at its website http://www.balochistan.gov.pk
Tax receipts in Balochistan are hardly two percent of its total revenues. For fiscal year 2014-15, total outlay of the budget is Rs. 215 billion that confirms the real predicament of this geographically largest province of Pakistan as such paltry amount cannot solve its fundamental problems of providing universal entitlements to a population that is widely scattered[2]. “Balochistan continues to face the capacity issue, evident from a lot of budget numbers. Missing targets is a norm for every budget, but Balochistan seems to take a good lead in this aspect. The most striking part is that the provincial government managed to lock in more receipts than envisioned in 2013-14, and yet managed to post the deficit and axing the most favoured scapegoat—the development spending-–at the same time”[3].
Balochistan’s own tax collection continues to be paltry, although the government claims that there was “a significant improvement in tax receipts over the budgeted amount”[4]. The province managed “to collect Rs. 3 billion in taxes last year, double the budgeted figure of Rs. 1.5 billion”[5]. This a myth, exploded at the end of the write up. Balochistan is certainly is not known for its agriculture, but one is shocked to see collection of tax on agriculture income—it was just Rs. 500,000 for the whole year!
White Paper issued by the Balochistan Government says that it had decided to bring some changes in current laws. But till today there is neither establishment of Balochistan Revenue Authority as promised in the last budget nor any effort to improve collection under two vital heads, namely, sales tax on services and agricultural income tax.
The Department of Excise and Taxation, facing serious capacity issues, collects revenue much below the actual potential. It collects the following taxes:
1. Property Tax
2. Motor Vehicle Tax
3. Entertainment Tax
4. Cinema Tax
5. Capital Gain Tax
6. Professional Tax
7. Welfare Cess
8. Hotel Tax
9. Duty on spirits
10. License Fee for sale of foreign liquor
11. Permit fee on liquor
12. Distillery fee
13. License fee on denatured spirit
14. Permit fee on denatured spirit
15. Assessment fee for sale of liquor
16. Trade Tax
The real problem is low collection from multiple taxes. Total collection from above taxes was Rs. 850 million in 2013-14, almost stagnant since 2009-2010[6].
The Tables below depict efforts of Balochistan in collection of revenues:
Table 1.1 – Provincial Own Receipts
(Rs. in Million)
| RECEIPTS | Budget Estimate 2013-14 | Revised Estimate 2013-14 | Budget Estimate 2014-15 |
| a) Tax Receipts | 1,550.796 | 3,234.075 | 3,508.676 |
| i. Direct Taxes | 1,461.076 | 3,146.251 | 3,428.435 |
| ii. Indirect Taxes | 89.719 | 87.824 | 80.240 |
| b) Non-Tax Receipts | 4,917.078 | 4,791.644 | 5,461.808 |
| i. Income from Property and Enterprises | 879.925 | 545.638 | 953.025 |
| ii. Receipts from Civil Administration and other Functions | 538.610 | 737.324 | 814.785 |
| iii. Miscellaneous Receipts | 3,498.543 | 3,508.682 | 3,693.998 |
| Total Provincial Own Receipts | 6,467.873 | 8,025.719 | 8,970.484 |
Table 1.2 – Provincial Tax Receipts
(Rs. in Million)
| TAX RECEIPTS | Budget Estimate 2013-14 | Revised Estimate 2013-14 | Budget Estimate 2014-15 |
| Board of Revenue | |||
| Agricultural Income Tax | 2.000 | 0.500 | 0.500 |
| Registration | 75.000 | 90.000 | 95.000 |
| Land Revenue | 122.220 | 50.729 | 114.220 |
| Stamps | 244.000 | 210.295 | 244.000 |
| Excise & Taxation | |||
| Urban Immovable Property Tax | 86.000 | 48.377 | 87.720 |
| Tax on Professions, Trades and Callings | 2.700 | 0.289 | 2.700 |
| Receipts under Motor Vehicle Acts | 503.475 | 532.112 | 521.138 |
| Sales Tax on Services | – | 1,806.750 | 1,912.630 |
| Capital Gains Tax | 0.800 | 3.000 | 3.500 |
| Provincial Excise | 404.881 | 376.200 | 417.028 |
| Other Indirect Taxes | 4.598 | 2.703 | 4.598 |
| Transport Motor Vehicles fitness certificate and permit fee | 20.000 | 28.000 | 30.000 |
| Energy Electricity Duty | 85.121 | 85.121 | 75.642 |
| Total Provincial Tax Revenue | 1,550.796 | 3,234.075 | 3,508.676 |
Source: White Paper issued by Government of Balochistan at its website http://www.balochistan.gov.pk
It is obvious from above that:-
- Progressive taxation is totally missing. Direct taxation in the form of agricultural income tax is just Rs. 0.5 million and there appears no will to increase it.
- Tax from rich property owners is not collected. Against budgeted figure of 86 million, collection was only Rs. 48.3 million. On the expenditure side only 23% and 9% for educational and health, respectively.
The huge grant received from Federal Government is thus going towards non-development side as evident from the following Tables:
Table:2.1 – Current & Development Expenditure
(Rs. in Million)
| Classification | Budget Estimate 2013-14 | Revised Estimate 2013-14 | Budget Estimate 2014-15 | |
| A. Current | General Administration | 22,025.232 | 20,732.287 | 24,762.649 |
| Law & Order | 16,236.412 | 18,592.363 | 20,280.510 | |
| Community Services | 9,890.504 | 10,526.449 | 11,250.261 | |
| Social Services | 41,236.000 | 44,071.174 | 48,674.147 | |
| Economic Services | 25,860.495 | 23,676.235 | 28,260.928 | |
| Debt Servicing | 2,099.606 | 1,668.215 | 1,821.699 | |
| PSDP | 39,931.631 | 34,964.877 | 48,018.756 | |
| Outside PSDP (Federal) | 14,761.527 | |||
| Foreign Project Assistance Loans | 3,981.244 | 1841.000 | 2,722.925 | |
| Cash Assistance (Japanese Grant) | 0 | 0 | 0 | |
| Total Expenditures A + B | 161,261.127 | 171031.369 | 185,791.876 | |
Table:2.2 – Development Budget
(Rs. in Million)
| Fiscal Year | Budget Estimates | Revised Estimates | % |
| 2008-09 | 15,745.320 | 15,164.956 | -3.69 |
| 2009-10 | 18,536.322 | 25,441.294 | 27.14 |
| 2010-11 | 26,753.566 | 34,664.043 | 42.6 |
| 2011-12 | 31,367.845 | 33,988.848 | 9.8 |
| 2012-13 | 35,818.855 | 35,302.352 | -1.65 |
| 2013-14 | 43,912.875 | 37,003.119 | 2.43 |
| 2014-15 | 50,741.681 |
Source: White Paper issued by Government of Balochistan at its website http://www.balochistan.gov.pk
Despite financial constraints, the Balochistan Government increased the non-development expenditures from Rs. 154 billion to Rs164 billion in budget 2014-15. As regards development funds, there was nominal increase in allocation for public sector development programmes from last year’s Rs. 43.913 billion to Rs. 50.742 billion in the current fiscal year.
In a nutshell, it is not the issue of capacity but priorities. There is no will to tax the rich and spend on the welfare of the public at large. This is not Balochistan specific trend—the entire country at federal and provincial level is facing the same dilemma which, itself is related to elitist structures that need to be dismantled as pointed out by Shahid Kardar as under:
The elite is unwilling, even in its own enlightened self-interest, to contribute on the basis of capacity to bear the resource burden required to build a fairer society. Instead, it has instituted a social order that imbibes the feudal value system and promotes a culture of paternalistic and personal relations (in contrast to impersonal market relationships and a culture of competitiveness in other economies), nepotism and patronage, violation of the rule of law, non-acceptance of the norms of fair play and justice, etc; wrecking institutions meant for checking such excesses. Even a slowly growing middle class from non-elite backgrounds has adapted to these value systems, creating a crisis of legitimacy for the state and its institutions[7].
The second important issue is non-spending of allotted funds. In 2013-14, infighting among the coalition partners over attractive portfolios caused a six-month delay in the formation of the cabinet in Balochistan. The provincial government could not complete the development projects owing to delayed formation of the cabinet. “Government could not use more than Rs. 2 billion for development projects”[8].
The position for fiscal year 2012-13 and 2013-14 for Balochistan is highlighted by the Federal Government in Economic Survey 2013-14 [see Table 3][9].
It exposes the claim of collection of revenue of Rs. 3.234 billion by the Balochistan government during the fiscal year 2013-14. In fact it wrongly took credit of sales tax on services a direct tax which is in fact indirect tax that was collected by Federal Board of Revenue on its behalf. In reality, it collected only Rs. 1.4 billion on its own. The province, is, thus, depending entirely on funds from the Federal Government. Economic self-reliance is the key to political autonomy. After 18thConstitutional Amendment, the right to levy progressive taxes like wealth tax on immovable property, inheritance and gift tax is with the provinces but no Balochistan government has shown any interest in generating its own resources to rapidly develop the province and provide the people the entitlements considered as basic rights [e.g. right to free education under Article 25A of the Constitution] in a democratic polity.
| Table 3 (Rs in billions) | |||
| Items | Balochistan | ||
| 2012-13 | 2013-14 (estimated) | ||
| A. Tax Revenue | 116.9 | 129.4 | |
| Provincial Taxes | 1.2 | 1.6 | |
| GST on Services (transferred by Federal govt) | 1.5 | 4.5 | |
| Share in Federal Taxes | 114.2 | 123.3 | |
| B. Non-Tax Revenue | 15.8 | 19.1 | |
| C. All Others | 34.0 | 32.1 | |
| Total Revenues (A+B+C) | 166.7 | 180.6 | |
| a) Current Expenditure | 104.8 | 117.3 | |
| b) Development Expenditure | 45.6 | 43.9 | |
| Total Exp (a+b) | 150.4 | 161.2 | |
Source:Economic Survey of Pakistan 2013-14, Chapter Fiscal Development
[1] White Paper, issued by Government of Balochistan at its website http://www.balochistan.gov.pk
[2] Balochistan is approximately 44% of the country’s total land mass with the smallest in terms of population, being home to less than 5% of total population.
[3] The Balochistan Miracle, Business Recorder, June 23, 2014
[4] Revenue Authority formed in Balochistan, Business Recorder, June 21, 2014.
[5] Ibid
[6] http://www.balochistan.gov.pk/index.php?option=com_content&view=category&id=561&Itemid=1170
[7] Overhaul the system, Shahid Kardar, Dawn, September 16, 2014
[8] Balochistan government unveils Rs215bn budget for 2014-15,Dawn,June 19, 2014
[9] Economic Survey 2013-14 [Page 67], Ministry of Finance, Government of Pakistan