Earmarking of revenue for 'employment zones'

Earmarking, a fiscal practice under which revenues from one or more sources are pooled into a separate independent fund to be used to finance certain pre-determined public services, has never been followed in Pakistan for reasons best known to financial managers.
The purpose of earmarking is to ensure stable funding for important public activities. Another objective of earmarking is to introduce market prices into the budgetary process.
In this sense, earmarked taxes become indirect form of market prices charged for public services rendered.
AMONG THE CONDITIONS FOR SUCCESSFUL EARMARKING, THE FOLLOWING ARE MORE IMPORTANT:
1. There should be a clear-cut linkage between the tax levied and the benefit received.
2. Expenditure is well defined so that the taxpayers can identify its obvious benefits.
3. Linkage between earmarked revenue (eg from motor vehicle tax) and predetermined expenditure (eg on construction and maintenance of municipal roads and bridges) is tight.
4. Revenue is in the form of direct user charger/benefit tax (eg a toll).
Traditionally, financing of road expenditure from out of tools, motor vehicle taxes, and fuel taxes has been considered an area with a strong economic rationale for earmarking.
Similarly, airport tax is generally levied to meet expenditure on airport maintenance.
The principle of earmarking could be applied to such municipal services as water supply, and sewage disposal by linking them to water and sewer charges which, in many cases, are components of the property tax in the sense that the base for these charges is the same as used for property (eg annual rental value).
In recent years a number of countries have utilised taxes for establishing 'employment zones' and this earmarking has produced excellent results.
In Pakistan all the governments since independence remain totally oblivious of this important fiscal practice.
The citizens never come to know where the taxes paid by them are actually employed by the State. Resultantly, they never convince of paying taxes as their national duty.
It is an established fact that despite resorting to all kind of highhandedness, illogical policies and unjust withholding taxes, the successive governments in Pakistan have failed to improve the tax-GDP ratio (which remain hovering around 11% to 12.5%).
The burden of many presumptive taxes levied under the Income Tax regime (which are nothing but indirect taxes) has been shifted from income earners to consumers and clients.
These presumptive taxes have distorted the whole tax system, destroyed the economic growth and made the consumer/client the ultimate sufferers.
Moreover, these despotic, short-term, myopic and figure-oriented revenue collection measures have even failed to reduce budget deficit no to talk of bringing any meaningful change in common man's life.
The country has been facing ever worsening unemployment crisis and a perpetual challenge of rapid industrial growth. But no government has ever thought of 'earmarking of revenue' for 'employment zones'.
SUCH EMPLOYMENT ZONES CAN CATER FOR:
-- Creation of employment
-- Technological renovations
-- Export promotions
-- Town renovations; and/or
-- Experimentation with new economic management systems.
Pakistan is in dire need of establishing a number of "Employment Zones', which should be low-tax or tax-free for corporate income, for companies creating new jobs. It will be an effective tool to reduce the mounting unemployment burden and also help boost the industrial/business growth.
The Government should identify the areas where structural employment is particularly high and then earmark revenue for establishing employment zones in those areas.
Out of total federal collection of taxes for current fiscal year, at least 25% should be transferred directly to an independent fund for establishment of 'employment zones'.
The Central Board of Revenue (CBR) has collected Rs 310 billion in tax revenue in the first eight months of this fiscal ie from July 2003 to February 2004, while another Rs 200 billion are required to be collected in the March-June period to meet the annual target of Rs 510 billion.
An allocation of Rs 125 billion in fiscal year 2004-05 for creation of 'Employment Zones' in areas where structural employment is very high can be a good beginning to show the citizens of Pakistan that the government is keen to utilise taxes paid by them for the national progress.