Incentives increase tax collection

KARACHI: Salary incentives for tax collectors in Pakistan could significantly increase the amount of taxes, according to a new film released by the International Growth Centre (IGC).
A statement issued Saturday said the video is of the results of a “pay for performance” scheme tested in Punjab by the Excise and Taxation Department and leading economists from Harvard and MIT.
The IGC video “Taxing Pakistan: How to motivate civil servants” found that incentivising urban property tax collectors increased the amount of tax collected by 30-40 percent. Public satisfaction in the work of tax collectors wasn’t affected, and the increased revenue more than paid for the reward scheme.
Tax collection in Pakistan is very low, even compared to other developing countries. Pakistan’s tax revenue is just 9 percent of its gross domestic product, compared to a 15 percent average across developing countries, and 40 percent across developed countries. This has led to a shortage of funding for public services such as education, healthcare, and sanitation.
In Punjab, the Excise and Taxation Department depends on tax collectors who spend much of their time in the field, directly determining what needs to be taxed.
Without incentives these tax collectors have suffered from low motivation and productivity.
This has undermined the government’s tax revenue.
Dr Adnan Qadir Khan, Research and Policy Director at the IGC, said, “When people don’t get enough services they don’t want to pay revenues to the state, and the state can’t provide those services because it doesn’t have enough revenue. That vicious cycle needs to be broken at some stage.”
The research was carried out by IGC-funded economists working with the government of Punjab, who tested three different “pay for performance” schemes and monitored the results for two years.
One of the researchers, Dr Benjamin Olken, Professor of Economics at MIT, said, “Overall the pay for performance scheme worked.
It substantially raised revenue, and surprisingly there were very little detectable downsides.
“We asked people their satisfaction in the tax department and it didn’t really change, even though revenue went up. That is in some sense a win for the government.”
This research is being implemented by the Centre for Economic Research in Pakistan (CERP).