• Taimur Chambers Plot # 10-D (WEST), Fazal-ul-Haq Rd, Islamabad
  • (+92) 51-2278134, (+92) 51-2278135
  • Taimur Chambers Plot # 10-D (WEST), Fazal-ul-Haq Rd, Islamabad
  • (+92) 51-2278134, (+92) 51-2278135

Research Programme

Research Programme

Provincial Tax Harmonization in Pakistan

Partner: Center for International Private Enterprise (CIPE) 

Locale: Locale: Islamabad, Balochistan, Khyber Pakhtunkhwa, Punjab, Sindh,

Time Period: October 2016 till June 2017

Introduction:

The provincial administrations have been entrusted with greater revenue mobilization responsibilities in a post18th Amendment milieu. Apart from the traditional taxes under provincial jurisdiction (e.g. property, transport and agriculture taxes), the sales tax on services is also under the provincial domain. Some provinces have also requested to devolve the control over federal excise collections.

As provinces gear up to achieve greater control over resource mobilization, there are issues related to double taxation (at federal and provincial stages), lack of census of agricultural and property incomes, missing data on services sector establishments and their turnover. Key reasons for these issues are:  a) fragmented structure of revenue mobilization at provincial level and b) weak capacity to plan forecast and audit the incomes base under provincial jurisdiction.

The provincial governments in Punjab and Sindh have undertaken a medium term exercise towards provincial revenue mobilization reforms. However there are several features of tax policies that require harmonization across provinces. An inability to do so will imply that a business or individual operating in at least 2 or more provinces is prone to face double taxation, cascading and other implications that impact cost of doing business. Currently Punjab, Sindh and Khyber Pakhtunkhwa have different tax rates and tax bases (on services, property, agriculture and transportation). There are also definition issues across legislation dealing with provincial taxes. 

The Federal Board of Revenue (FBR) has been trying to advocate the idea of National Tax Commission to coordinate the tax reform efforts across various provinces. The provinces however see this as a violation of 18th Amendment. A consensus is now required among four different tax administrations across the country, as to how best sub-national taxes can be harmonized.

We propose an approach which can capture inputs on provincial tax reforms and is nationally representative      . We would like that this project should ultimately provide a harmonization model to be considered by FBR and provincial tax authorities for adoption. Therefore a series of roundtable meetings is proposed at provincial level to get inputs from private sector, consumer groups, trade associations, tax bar associations and labour unions. The aim here is to gauge what these stakeholders may want to see under a harmonized provincial tax code. A key question to be address here is ‘what measures may be standardized and which levies can be the discretion of provincial authorities’. SDPI will document these inputs and communicate to the provincial legislators and tax authorities in each province. Each roundtable will also include a keynote address on best practices in sub-national tax policy.

Objectives:

The key objective is to make use of preliminary work conducted by CIPE and SDPI on this subject and to arrive at a tax harmonization methodology, through a multi-stakeholder dialogue that can be organized across provinces.

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