International Monetary Fund (IMF) ask Pakistan to increase provincial taxes, particularly those related to agriculture, services sales tax, and property tax.
In order to harmonize taxes between the federal government and the provinces, the international lender also urged the creation of the National Tax Council (NTC).
The importance of provincial taxes in generating surplus money from the provinces cannot be overstated, as the combined contribution of all four provinces to GDP was a pitiful less than 1%.
According to IMF estimates, provincial taxes have a sizable potential income stream. However, in addition to causing a variety of distortions and inequities, a lack of consistency in the policy and administration of the provincial taxes prevents this income potential from being fully realized.
Although the NTC’s progress toward accomplishing its goals and expanding its purview has been somewhat sluggish, it has produced some positive outcomes and may offer a ready-made framework for reaching agreement on a wider variety of provincial tax matters.
The IMF has suggested that the NTC’s mandate be expanded to encompass the harmonization of the bases and rates for property tax and agricultural income tax.
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The IMF requested that province governments increase their efforts to enforce provincial tax regulations and collect provincial revenues. According to the IMF, province governments collect agricultural income taxes (AITs) more heavily than they do other forms of revenue.
The IMF reports that, with a few notable deviations, the four provinces’ fundamental service tax tax structures are quite comparable in terms of sales tax.
The non-standard tax rates have different structures in each province, while the standard tax rate is generally the same at 15%. For services subject to decreased rates across all provinces, there is no input tax adjustment available.
Additionally, the taxable base’s services are mostly comparable. All provinces, with the exception of Sindh, lack exemption levels and have zero-rated products in the base.
The Constitution specifies how the federal government and the provinces are to share taxing rights. Legislation pertaining to ICT and items listed in the Federal Legislative List (FLL) can only be passed by parliament.
The FLL acts as a negative list of the subjects on which provincial legislatures have the authority to enact laws; all other things are exclusively subject to provincial assembly legislation.
Nonetheless, federal law shall take precedence over provincial law in any controversy involving matters falling within the FLL. The Pakistani Parliament may, by consensus, make or execute laws pertaining to subjects not listed in the FLL.
If the appropriate provincial assembly formally approves a resolution authorizing parliament to regulate the topic by legislation, with the resolution being amendable or repealable at any time, parliament may legislate on matters not covered by the FLL with regard to a province.
Similar to this, a province government may assign some or all of its executive functions to the federal government, subject to the requirement that the provincial parliament ratifies the assignment within 60 days of the entrustment, as noted by the IMF.
