- KP revenue authority on record high in collecting tax on services
Series of reforms in taxation and ease of doing business measures by the government of Khyber Pakhtunkhwa has started reaping benefits. The government aims to be self-sufficient by generating its own revenues, so it wouldn’t be fully reliant on federal receipt that are 92 percent of its resources in the current circumstances and would be able to allocate more resources for development and providing public utilities. A significant step towards achieving this goal is the growing numbers of revenue collection by the provincial revenue authority.
Khyber Pakhtunkhwa Revenue Authority (KPRA) has a remarkable first half of the financial year 2019-20. It kept on the track of achieving its revenue targets and has registered an increase in its monthly revenue collection for the sixth consecutive month. In the first half of financial year 2019-20, it has almost doubled its revenue collection over the previous year 2018-19 in the same period. In the first quarter of financial year 2018-19, the authority collected Rs 4.46 Billion, while this year, the amount is Rs 8.14 billion. It is an unprecedented 83 percent growth.
According to the figures shared by provincial finance minister Taimur Jhagra on his twitter account, KPRA collected Rs 1.3 billion in the month of December. This marks 75 percent increase in revenue for the month as compared to the revenue collected, last year, in December. The revenue figure for the month reaches Rs 2.66 billion after Rs 1.36 billion received from the federal government on account of adjustments for 2016 are added to it.
In November 2019-20, the amount collected in revenue was Rs 1.17 billion that was 48 percent higher than November, in the previous year, when the amount was Rs 0.79 billion. In October, the revenue collection reached Rs 1.10 billion that marked an increase of 68 per cent, as in October 2018-19 Rs 0.65 billion were collected.
The upward trend was set from the very first month of the ongoing financial year, when in July, this year, revenue collection went to Rs 1.15 billion, that was 57 per cent more than July 2018-20 when Rs 0.73 billion were collected. July marks peak time in tourism season, hence the services industry was in full swing, it is portrayed in the revenue collection figures from the month and a subsequent decline in August when revenue collection came to Rs 0.93 billion, it was still 14 per cent higher than the same period, last year, in 2018 when Rs 0.82 billion were collected. September showed upward trend again, as the amount collected by KPRA was Rs 1.14 billion. It was 57 per cent higher than September 2018 when Rs 0.73 billion were collected.
Improved numbers of tax collections indicate that government steps to reform taxation is bearing fruits. Pakistan Tehreek-e-Insaf (PTI) led provincial government, in their first term, set up 17 working groups to look into the system of different government departments and recommend reforms where needed. The working group in excise and taxation department suggested reforms in taxation laws and setting of tax facilitation centers in all the divisional headquarters. In August 2013, provincial revenue authority was established as a requirement under implementation of 18th amendment and was mandated to administer and collect sales tax on services across the province. PTI government strengthened it further by recruiting its senior management and expanding its working staff. Its revenues come from telecommunications, oil & gas, withholding, banks, construction, security services, hotels and restaurants, manpower and insurance sector. In the past six years it is expanded from a team of seven persons to a staff of around two hundred persons and many directorates and tax collectorates are established. It was working as an arm of the excise and taxation department.
The PTI government, in their second term, aimed to increase the revenue base, since KP rely on federal receipts that makes 93 per cent of its resources. Low tax collection means government would have restrains on its spending. Hence, series of reforms were introduced to increase the tax base. It required improved legal framework and bringing informal sector under tax net.
In the first year of their second term, revenue collection at the provincial level had an unanticipated hit when a change in share of taxes from telecommunication sector brought the province aggregate share in revenue collection from 48 per cent to 23 per cent. But, KPRA optimization measures and effective enforcement policy worked and it collected Rs 10.584 billion and showed 43% growth in tax collections from the non-telecom regimes.
For the financial year 2019-20, KPRA was tasked to collect Rs 20 billion in revenues. To achieve the ambitious target, KPRA started by plans to extend the revenue base, revamping its tax schedule, rationalizing tax rates, and strengthening its enforcement regime. To address reservations of small businesses and to increase fairness and bringing vertical equality, multiple slabs and categories for taxation were introduced, so that similar rates of tax for small and large business could be avoided. In a bid to improve its legal framework, KP Finance Act 2013 was amended, and descriptions and classifications of the First and Second Schedules of the KP Finance Act, 2013 were rationalized while taking cue from international practices. For vertical equality, tax coverage was linked to 46 classes of services instead of taxing individual services, and tax rates on several classes and categories of services were reduced from fifteen per cent and brought to two, eight, and ten per cent. The new policy of multiple tax rates was aimed to promote tax compliance and encourage economic documentation, and as a result would attract investments in the province and creating job opportunities, hence raising average standard of living in KP. These measures are also part of the government bids to promote ease of doing business. The committee to oversee these measures is headed by the finance minister himself.
KPRA strategy as defines on their official website aims to gain sustainable and steady increase in Sales Tax collection. The Revenue Collection Strategy (RCS) has four main tiers i.e. Taxpayer Compliance Strategy, Audit Strategy, Withholding Strategy, and Enforcement Strategy. To complement these aspects, a comprehensive Communication Strategy has also been devised.
For taxpayers’ compliance KPRA offers I.T Enabled Taxpayer Support Services having comprehensive e-services on internet and through call centers for e-filing, e-payment and e-record keeping facilitation over its dedicated web portal. The web portal enables the service providers willing to register for Sales Tax on services to give particulars of his business of good or services on his own convenience through an online application form. Another website of KPRA has also been launched to educate the taxpayers and share comprehensive information with all stakeholders. Besides these activities, KPRA recently launched an SMS alerts program for the taxpayers and it would organize seminars and awareness campaign to promote tax culture in the province.
Another key initiative of KPRA was training of withholding Agents. Around 200 withholding agents were trained through different workshops and briefed about their responsibilities under Withholding Regulation. After the training, significant improvement was observed in revenue coming through withholding agents, and withholding tax contributes major share in the revenue figures for the last couple of months.
Similarly, KPRA conducted series of event for awareness of taxpayers and their responsibilities to pay taxes on the services they deliver in Khyber Pakhtunkhwa. KPRA reached massive awareness campaign via social media, TV talk shows, print, and electronic media in order to brief taxpayer on the registration process and filing their tax returns.
These rationalization measures have benefited restaurants and eateries, wedding halls and event management companies, single laundries and dry-cleaning businesses, property dealers, dealers of secondhand goods, used cars dealers, and rent-a-car businesses. Along with this, tax rates on toll manufacturing or contract manufacturing, industrial workshops and authorized dealership workshops, and all other categories of workshops were reduced to encourage manufacturing activity. Also, taxes on advertisement in print and electronic media were also reduced.
While commenting on the KPRA performance and the provincial government’s ease of doing business measures, Finance Minister, Taimur Saleem Jhagra stated that Khyber Pakhtunkhwa’s government is committed to ensure ease of doing business in the whole province. For this purpose a task force has also been set up, which is ready to work with all sectors that would help the government in restructuring business processes, no government has been taken such steps in these matters which resulted into the situation that we are facing today. The aim of these initiatives is to create Khyber Pakhtunkhwa friendlier in business reforms.
Taimur Jhagra claimed that Pakistan achieved its best position in global rankings in the ease of doing business and that improvement will continue with implementation of these reforms in the country. Khyber Pakhtunkhwa government is also much serious in ease of doing business and removing all the bureaucratic hurdles to create business-friendly environment to investors and the issue of red-tapism in the government departments will be addressed. He emphasized that practical steps are required to address the hurdles in ease of doing business in the province. Taimur referred to the restaurant business where 14 different taxes are applicable, no one in the past tried of simplifying these taxes and making the process easier but now government is planning the merger of all provincial taxes and simplifying other rules and procedures to ensure ease of doing business in the province.
The ongoing process of reforms has paid well, and the results are portrayed through the rising performance graph of KPRA that has collected registered 47 per cent increase in tax collection during first quarter of the ongoing financial year (2019-20) as compared to the same period, last year, in 2018-19. And the upward trend in continued in the past two months. There’s a long way to go, but this all steps in the right direction and will help achieve the ambitious target of Rs 100 billion in tax collection till the year of 2023.