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LAHORE: During the Coronavirus pandemic, the Punjab government incurred approximately Rs 103 billion losses in tax revenues between 2020 and 2021.

This was disclosed in a Punjab Finance Department’s report on ‘Impact Assessment of Covid-19 on the Revenues of Government of the Punjab.’ The report observed that the actual revenue collection during the 15 months under consideration was Rs 273 billion against a projection of Rs 376 billion in a ‘No Covid’ scenario. Thus, the actual collection was 27 percent lower than the ‘No Covid’ scenario.

According to it, the Punjab government has undertaken the task of assessing the impact of Covid-19 on major own-source tax revenues, including stamp duty, urban immovable property tax (UIPT), motor vehicle tax (MTV) and Punjab sales tax on services (PSTS), which together accounted for approximately 89 percent of total own-source tax revenues during both FY18 and FY19.

The report highlights that the overall impact was high in case of stamp duty, Rs 59 billion, and Punjab sales tax on services, Rs 38 billion, low in case of urban immovable property tax, Rs 5 billion, and minimal in case of motor vehicle tax, Rs 1 billion.

“The Punjab government, in coordination with the federal government, opted for limited or smart lockdowns considering the economy was already suffering from a slowdown, high unemployment. In this context, extensive lockdowns were likely to create further economic damage in addition to the damage caused by Covid.

“Despite the limited fiscal space available with the Punjab government, it decided to support the economy through a combination of tax reliefs and additional expenditures on social protection. The government reduced or waived several taxes with the expectation that disposable incomes of citizens would increase as a result and consequently support the economy through additional consumer spending,” it said.

“Among the options available to the government to tackle Covid-19 economic impacts, an approach to tax concessions was common across jurisdictions. This approach was thought to be imperative for supporting businesses and individuals in sustaining losses, surviving the pandemic-induced recession, and supporting consumption and investments to bolster demand and supply sides. The biggest challenge for the government, however, was to find an optimal balance between providing tax reliefs and maintaining public finances,” said the report.

It observed that the Coronavirus pandemic hurt the economies across the globe resulting in negative repercussions for both customers and businesses. “The economies had to deal with business shutdowns, reduced outputs, supply disruptions and massive declines in household incomes owing to job losses, routine layoffs and pay cuts,” it added.

The report also reflected on important lessons that can be learnt from Punjab’s experience with Covid-19. It said that in times of natural calamities, attempts to revive economic activity through temporary tax reliefs may be less effective compared with achieving the same objective through temporary increases in government spending as the latter can be better targeted to the affected groups.

“Relief measures, whether in the form of tax reliefs or additional expenditure, should be targeted towards the most vulnerable segments of the society while designing a tax relief package in response to a natural calamity, it is important to differentiate between taxes that are directly linked with the economic activity and those that are not,” it added.

“The biggest lesson, however, is that the governments need to be prepared to deal with events such as natural calamities, which have a low probability but high impact. This requires various policies, strategies and mechanisms to be in place,” it added.

Copyright Business Recorder, 2022

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