by Fahad Ikram Qazi
On August 6, 2013, KPRA began the journey by enrolling 7 persons and reached to 308 at the end of the same year. During 2016-17, however, record increse occured by enrolling further 840 persons, resulting in total of 1955 tax payers, hence accelarated growth in the tax base. Initially, only 11 service sectors were included in Schedule-II of Khyber Pakhtunkhwa Finance Act 2013, but as of now, they have reached 91.https://republicpolicy.com/reforming-sales-tax-and-kpra-in-kpk/
Total contribution till date is Rs35 billion. Currently, the government of KP set the target of Rs10,000 million for FY 2016-17, which represented an increase of 25 per cent over the previous year’s target of Rs8,000 million. KPRA achieved the target and in fact surpassed the same by collecting Rs10,307 million for 2016-17. KPRA’s performance remained remarkable in revenue collection, broadening of tax net, taxpayer facilitation and system automation. The highest growth rate of more than 40 per cent was achieved in the 2016-17.
The trend in collection is positive as during the year 2013-14, 92 per cent of the recovery was realised from the telecom sector alone followed by 71 per cent in the year 2014-15. During successive years 2015-16 and 2016-17, the contribution of telecom was dropped to 59 per cent, which shows that the density of tax collection is shifting from telecom to variegated sectors of the economy.
Pre-2013, FBR collected taxes on services and distributed among the provinces. Post-2013, the tax collection on services has experienced a steady growth. KPRA collected a significant amount of tax that surpassed the overall tax collection made by FBR during the preceding years since 2001. At inception in 2013-14, the authority generated Rs5,668 million as compared to Rs4,741 million collected by FBR in the year2012-13 — 20 per cent of increase.
The increase in revenue collection validates the decision of shifting the sales tax on services to the provinces. It further lays the ground for pursuing the goal of uniform taxation through devolving the sales tax on goods too to the provinces. The same has also been recommended by the working group on revenue mobilisation constituted under the National Finance Commission.https://republicpolicy.com/an-overview-of-the-economy-of-pakistan/
Sales tax on services in fact provided the much needed push to the provinces in enhancing their “own source revenue”, as only this contributes more to the provincial exchequer compared to other sources collectively. It has emerged as the largest tax collection authority by contributing 31.63 per cent to the total provincial owned receipts and 56.42 per cent to the total provincial tax receipts for the instant year. KPRA has collected revenue of Rs10,270 million in the FY 2016-17 vis-a-vis Rs2,733 million by the Board of Revenue and Rs2,381 million by Excise & Taxation Department.
Telecommunications, oil & gas, withholding, banks, construction, security services, hotels and restaurants, manpower and insurance contributed more than 97 per cent of the total revenue generated by KPRA during the FY 2016-17. However, tax audit of other sectors can identify more potential which will lead to diversification of the tax base.
The sales tax on services is faced with numerous challenges. Lack of documented economy, lack of awareness, unwillingness to pay taxes due to lack of trust on state institutions, weak tax culture, perceptions of corruptions and misuse of public resources, tax illiteracy among small business owners, lack of will and capacity of the withholding agents, intra-province jurisdiction issues e.g. settled areas and PATA and dependency on the federal government in several areas of tax management are major among them.
Khyber Pakhtunkhwa is doing better in sales tax compared to other sources of provincial taxation, but it’s still far behind Punjab and Sindh in terms of revenue collection and strong institutions. Punjab revenue collection on the same account has been Rs82.5 billion and Sindh Revenue Board collected Rs78 billion as compared to Rs10. 27 billion of the KP. Balochistan has been last in both the establishment of a dedicated institution and collection of revenue i.e Rs4.6 billion. Besides the degree of capacity of the respective institutions, other indicators like economic activity and population too have a role to play though.
The provincial governments have realised the need for generating their own revenue but much is needed to be done towards tapping the actual potential. Provision of smart and convenient processes will work to an extent. Apart from all the legalities and technicalities of the system, fostering a culture of taxation should be the overarching objective of the tax authorities.https://republicpolicy.com/fixing-the-structural-issues-of-the-economy-of-pakistan/
People simply don’t like being taxed. They feel of being robbed by the state while paying taxes. They should have felt as if they are making an investment unto their own self in a collective way, which in fact is the rationale behind taxation. This inherent malady is to be addressed as perceptions build over generations are hard to change but we have to begin at some point. Curbing corruption and being courteous to taxpayers will contribute, but not much. Tax education at massive scale is the solution.
To begin with, demystify this mechanism of taxation. Include the purpose and ways of taxation in the syllabus for even our educated are uneducated about taxation. A practical way would be to annually show the taxpayers their total collected amount and the way it is being spent. Take their input and subject yourself to public audit. Well, this all is happening somehow in way or the other, although having no impact. It’s about time to concentrate on the provincial taxation framework, and go for a uniform taxation whereby people would know how much and to whom they are paying so as to build trust and let them make the government accountable.
The objective of the 18th amendment is to make the federation solid and functional. Provincial financial autonomy in the supervision of the federation is indispensable. Then, there is cooperative federalism. The provinces must support the federation for financial stability. Therefore, the independence of domains is essential for the purpose. Let the provincial taxation system grow and contribute to the cause of the economy! (Concluded)
The writer is a civil servant.
