Redefining urban boundaries via GIS can help govt expand tax base

LAHORE: Geographical information system (GIS) has enabled the Punjab government to increase its tax revenue, as it led to the redefinition of urban limits and extending the existing urban immovable properties for assessment and collection of capital value tax (CVT).
As cities expanded beyond the designated city limits, the properties constructed were not assessed for capital value tax. The residents thus enjoyed all the civic amenities without paying any property tax.
With provincial tax revenue forming just 11 percent of its total receipts, Punjab, like other provinces, desperately needs to increase the share of its provincial taxes. This can be achieved by not just improving the tax administration but also by expanding the taxpayers’ base. This would also help increase the national tax-to-GDP ratio.
It is worth noting that Initially GIS technology was used for monitoring education services in the many districts of Punjab. But later those using this technology thought of extending its scope for identification of new rating areas for the purpose of collecting CVT on immovable property in Sheikhupura.
“The exercise produced immediate results and we were able to quickly boost our CVT revenues by extending the urban boundaries of the district,” Sara Omar proudly announced, who had supervised the rating area extension exercise during her posting as additional district collector Sheikhupura at that time.
In Sheikhupura, GIS use led to an increase of 50 percent to the rating area in 2015 which helped significantly increase tax collection under the CVT head. Sheikhupura was one of the two districts in Punjab – the other being Vehari – where DFID-funded Sub-National Governance (SNG) programme had launched pilot initiatives to promote the use of GIS for evidence-based decision making in key sectors, especially in health and education.
The identification of the new rating area in Sheikhupura to the tune of 10,622 acres, which is almost half of the existing rating area of 23,187 acres, helped quadruple CVT collection to Rs62.5 million in the quarter ending September 2015/2016 from a mere Rs15.7 million a year ago.
The increase in CVT revenues in Sheikhupura (GIS experiment district) is far greater than the increase in Mandi Bahauddin (a similar district where there was no GIS intervention). CVT is imposed on immovable property at a rate of two percent of the value of property calculated based on DC notified rates as a fixed levy under the Punjab Finance Act, 2010 and the tax is applicable in urban areas as defined in Punjab Urban Immovable Property Tax (UIPT) Act, 1958.
Punjab has set a target of Rs12.6 billion under CVT during the current financial year, 7.3 percent more than the previous year’s revised estimate. CVT accounts for a little more than a fifth of the total revenues collected by the Board of Revenue over the past few years.
After the successful use of GIS technology in urban area demarcation in Sheikhupura, the provincial government has an opportunity to replicate this exercise across the province for identifying and bringing into the tax net new rating areas.
However, the opportunity has not been fully exploited. When contacted, Asad Islam Mahni, member, BoR (Tax), insisted that the BoR had been extending the CVT rating areas every year.
But he did not elaborate if the BoR had used GIS technology for accurate identification of new urban areas, what the quantum of such an increase in rating areas was, and whether and to what extent it led to increase in CVT collection.
Provincial finance minister Ayesha Ghaus-Pasha maintains that the BoR continues to identify and extend the limits of existing urban areas, in a phased manner, every few years as is provided under the (Punjab UIPT) law. “Besides, we also keep reviewing, upwards, the DC rates of urban land on an annual basis leading to increase in CVT collection,” she said.
Officials claim that the use of GIS technology could help push CVT collection in Punjab by around Rs7 billion in just one year, a major potential source of revenue for the province. “The province has indeed significantly increased its tax revenue in the last couple of years. But the existing tax base remains very narrow, as no tangible effort has been made to expand the number of taxpayers.
The use of GIS technology for redrawing and extending limits of urban areas across the province can potentially add thousands of new taxpayers as has been demonstrated in case of Sheikhupura,” concluded a finance department official.