National Revenue Generation - The Integral Role of Provincial Governments

There is wisdom in the allocation of taxing rights between federation, provinces and local bodies under the constitution. Provinces have inherent right of ownership of all immovable properties located in provinces. Furthermore industrial, commercial and professional activities are by implication undertaken with the consent of the provincial governments. This particular manner of conduct of economic activity was well conceived in the constitution and formed the bases of allocation of taxing rights.
The 18th Amendment has solidified the original concept and removed the aberrations introduced over the time. The finesse in the structure has however not been fully appreciated. All the stakeholders have to play a proactive role in explaining the original and real concept laid down in the constitution.
Records of all immovable properties and substantial variety of other assets are kept, maintained and documentarily subscribed by the provincial governments. This essentially require right of taxation of income arising from immovable properties by the provinces. Similarly rendering of services, specially professional and trading segments are concentrated and conducted within a particular geographical location. This gives an easy and effective access to the local or provincial administrators also maintaining the asset records.
Unfortunately both on policy and administration sides, last 64 years of our independence reflect complete distortion and disregard of this principle. There had been too much concentration of taxation at the federal level without adequate access to asset records. There are witnesses of trespass of the constitutional boundaries of allocation of taxing rights. 18th Amendment is a step to reincarnate the federal status of the state of Pakistan in economic sense.
Empirical studies around the world reveal that in federations like Pakistan incremental growth in Tax to GDP ratio can only be achieved through substantial generation of revenue by the federating units. Our story is different. Taxation of income and consumption is conceived to be the sole role of the federation. This mindset is to change. Provinces will have to substantially contribute in overall revenue generation if the country has to achieve a respectable Tax to GDP ratio. At the moment gaps exist both on policy and administration sides.
Provincial Boards of Revenue and Excise departments have important roles to play in provincial administration. The question is whether such institutions have passed through the evolutionary process and attained requisite vision and mission necessary for a vibrant tax collecting authority capable to tune in with federal system. The answer is in negative. This does not show any sign of irrelevance for such institutions. Their role is important but different. The solution lies in creation of effective provincial revenue authority. Formation of Sindh Revenue Board is a step in right direction.
However an important aspect that should not be overlooked in any sense is the apparent 'singularity' of taxing authority with plurality within the structure. Citizens can not be burdened to deal with multiple authorities and processes. It has been noticed that this important aspects is not being given due priority. Experience in this field reveals that notwithstanding the rights of taxation between the federating units being federation, provinces and local authorities, for a customer a singular window is the only workable solution. It has been observed that lack of in depth communication between federation and provinces, sharing of data and information and other such handicaps are effectively benefiting the tax evaders at the cost of common man. This is the issue of national economic survival that needs to be seen beyond political differences.
We have sufficient local expertise to design a taxation structure where there is singularity in the front with an opaque plurality with respect to taxing rights. This happens in all developed federations like US, Australia, Canada and others. We all should learn that Federal Board of Revenue and Provincial Boards of Revenue are not competitors for customers and revenues. They are equal partners in the vital national job of generating revenues direly needed for development of the country and remove distortion in distribution of wealth and incidence of taxation.
(Syed Shabbar Zaidi, Partner, A F Ferguson & Co Chartered Accountants Member, Revenue Advisory Council, Ministry of Finance, Government of Pakistan Member Tax Reform Group Federal Board of Revenue. Past President, Institute of Chartered Accountants of Pakistan and South Asian Federation of Accountants.)