EDITORIAL: Collecting taxes: Provinces must get their act together

EDITORIAL: Federal Board of Revenue (FBR) chairman Rashid Langrial during a panel discussion held under the auspices of the Afkaar-e-Taza Thinkfest in Lahore urged the provinces once again to make greater efforts to collect taxes in order to bridge their large revenue gaps.

There is no doubt that provinces rely heavily on their share of the divisible pool taxes instead of on their own resources, including levying a farm tax on income that is commensurate with the income tax payable by the salaried class.

The Centre typically budgets a much larger gap between revenue and expenditure, budgeted at 6.5 trillion rupees in the current year necessitating heavy borrowing both domestically and internationally.

In contrast, Punjab has budgeted its stock of debt at 1710 billion rupees, and Sindh of 38.5 billion rupees.

Be that as it may, there is a long-standing legitimate demand by not only the multilaterals but also the Centre for provinces to increase their own resources and to reduce their reliance on divisible pool taxes - an objective that is routinely compromised due to failure to reach a consensus on the National Finance Commission award that would enable the Centre to reduce its own deficits.

READ MORE: Salaried individuals: Tax rate too high in region, admits FBR chief

Needless to add, discussions on the NFC award remain suspended today with the Centre periodically expressing optimism as to its imminent approval while the provinces remain opposed to any change in the vertical distribution by invoking the constitutional clause that disallows any rollback in the share of provinces from what was agreed in a previous award.

Agriculture income tax is a provincial subject as per the Constitution and it is relevant to note that the International Monetary Fund (IMF) in its second review of the ongoing USD 7 billion Extended Fund Facility programme noted that “provinces have begun implementing new agricultural income tax (AIT) regimes, including measures to strengthen compliance, address under reporting, and improve communication.

However, significant obstacles to realising the full potential of AIT remain, notably fully operationalising information sharing between the FBR and provincial tax authorities.

The provinces have also ensured that all services, except for a limited list of exemptions, are subject to GST.” But what has so far been ignored by the IMF and the federal and provincial governments is that the focus on crops to generate AIT does not reflect the main source of the Gross Domestic Product from the agricultural sector, which is calculated at 24 percent while its components’ contribution is as follows: major crops — wheat, rice, sugarcane, maize and cotton — accounting for no more than 5 percent of GDP while livestock contributes nearly 64 percent of agricultural GDP and 15 percent of national GDP.

The question that arises is why has no attention been paid to livestock sector with respect to tax collections.

Copyright Business Recorder, 2026