Increasing revenue collection mechanism: FBR ready to facilitate provinces
The Federal Board of Revenue (FBR) has assured provinces of full assistance towards strengthening provincial revenue authorities through introduction of tax reforms including drafting of tax laws/regulations for tax enforcement and increasing sales tax collection from services' sector.
Copyright Business Recorder, 2013
Sources told Business Recorder here on Sunday that the issue of FBR's co-ordination with provinces in fiscal matters was discussed during the last meeting of the provincial finance secretaries on 'Creation and Appropriate Use of Additional Fiscal Space by provinces' held at Finance Division.
The finance secretary, Balochistan shared that the provincial revenue authority would be established in the province for collection of sales tax on services whereas the tax authorities assured that the FBR is ready to facilitate all four provinces to increase their revenue collection mechanism.
As services is provincial subject, the FBR will assist provinces by helping them in drafting effective rules and regulations for implementation at the provincial level for expanding the tax base with increased revenue collections, sources said.
According to sources, tax authorities gave valuable suggestions for improving the general sales tax (GST) collection and assured full co-operation to strengthen provincial revenue authorities in terms of framing appropriate tax laws/regulations, further refinement of definition of tax bases, risk based audits, tax enforcement and sharing of data. The FBR's official has assured the provinces of full co-operation in improving GST on services.
On the issue of increasing revenue from the traditional provincial taxes (UIPT, AIT, Stamp duties, MVT, etc), the FBR's authorities underscored the importance of proper valuation of properties as per prevailing market rates which could provide the provincial governments a sizeable and predictable revenue stream. Tax authorities of the FBR view that if provincial governments could disaggregate the existing expenditure in social sector, they would be able to meet the requirements of non-salary Operations & Maintenance (O&M) social spending as envisaged in the policy matrix, with relative ease.
The meeting decided that provinces will provide one-page briefs to Finance Division on proposed reforms for increasing revenues from GST and traditional sources.
The meeting also decided that the provinces will calculate the non-salary expenditure in education and health sectors to come up with exact figures of such spending in the said sectors. This will give a clearer picture on the required efforts from provincial governments.
It has also been decided that Inter-Provincial Revenue Committee would be formally notified along with their terms of references (ToRs).
During the meeting, Finance Secretary highlighted that external inflows have decreased over the last few years. He added that 7th NFC Award and the 18th Constitutional amendment have resulted in transfer of a larger portion of divisible pool taxes to the provinces. This has increased the consolidated fiscal deficit (both federal and provincial) to unsustainable levels and lowering the deficit to more sustainable levels requires urgent actions from each government in the federation.
The Finance Secretary informed the meeting that Finance Division is currently in discussion with the World Bank for a Development Policy Credit (DPC). The policy matrix being finalised with the bank requires preparation of a roadmap to be finalised with provinces for (i) generating additional revenues from the harmonised expansion of the scope of services taxed by the General Sales Tax on Services (GSTS); (ii) increasing by no less than 20% the budget allocations to non-salary education and health spending; and (iii) expanding the primary education linked conditional cash transfers (CCTs) in no less than 20 districts covering all provinces with a benefit of Rs 200 per child with effective co-financing arrangements with provincial governments.
Chairman, FBR pointed out that given large increase in salary bills, non-salary expenditure continues to be inadequate. Tax authorities, therefore, emphasised the need of curtailing salary bills by provinces to create more fiscal space.
The Finance Secretary, Punjab informed the meeting that although after the 7th NFC Award provinces are getting a larger share but at the same time, their responsibilities have also been multiplied. He informed that the Punjab Government has initiated an austerity drive by imposing a 15% cut on expenditures. It was added that Punjab Revenue Authority has the collection target of Rs 62 billion for the current fiscal year and highlighted the commitment of the chief minister for keeping the development budget intact.
The finance secretary, Balochistan informed the meeting that managing finances in the province is becoming increasingly difficult in the present scenario. Despite that they have thrown up a budget surplus. He further informed that they have already increased spending considerably in health and education sectors and was of the view that they could meet the target of 20% spending in these sectors. He, however, conveyed the inability for contributing in conditional cash transfers (CCTs) under BISP. He added that Balochistan is contemplating establishment of a Provincial Revenue Authority for which a study will first be undertaken.
The secretary Khyber Pakhtunkhwa informed that their Revenue Authority was established in 2012 and a tax survey project has also been planned. He added that for enhanced social protection, special initiatives like stipends for students and treatment facility for special diseases have been undertaken. He informed that they are providing subsidies on wheat, etc while a considerable portion of their budget is spent to maintain law and order. Given above, he was of the view that no fiscal space is available with the Khyber Pakhtunkhwa Government for contribution as indicated in the policy matrix.
The finance secretary, Sindh informed that they have also curtailed their expenditure and in current fiscal year no vehicle has so far been purchased. He added that Sindh Revenue Authority is working satisfactorily and revenue collection is on an increasing trajectory. He appreciated the idea of CCTs and assured co-operation, sources added.