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December 15, 2019

When provinces do not agree on taxes and revenue


December 15, 2019

LAHORE: Lack of inter provincial harmony is one of the inhibitor of growth. The provinces compromise national interests in order to boost their revenues. Sindh taxes imports routed through it. Punjab slaps additional levies on goods imported through ports.

Sindh claims that it is generating more revenues than all other provinces; Punjab says that it consumes bulk of imports and local production and its consumers bear the heavy sales tax burden that is collected elsewhere.

We are busy in point scoring instead of streamlining our affairs. Sales tax is collected on consumption and some say it is the right of the province where a product or service is consumed.

The custom duty and sales tax on goods is the right of the federal government and irrespective of the region from where it is collected no province can claim that it generated the tax.

There is a National Finance Commission award formula under which the federal taxes are distributed as per an agreed ratio based on population, area, backwardness and tax collection.

So irrespective of from where the taxes are collected, the distribution is fair according to the agreement between all provinces.

Pakistan would soon become a conduit for trade under the China-Pakistan Economic Corridor (CPEC). The imports and exports from China and numerous Central Asian countries would pass through this corridor. They will just be paying a sort of rent for using this facility, but the total amount might one day be higher than our major taxes. This amount would be pocketed by the federal government; otherwise each area from which the corridor passes would claim a share.

The CPEC infrastructure would be maintained by the federal government. The Chinese importers would pay the custom levies in China and the exporter would bear the export taxes in China.

The Gwadar port would only be a transshipment point. In fact this practice is already in vogue in Afghan transit trade.

The shipments to and from our provinces should be treated the same way. Since we are one country, it is easier to collect government levies at points on entry and exit.

There should be no discussion as to which province generated the revenue. The consumers bear all government levies and it would not be possible to trace as to how much each province consumed. If it is calculated on population basis then a formula of federal tax distribution on population basis already exists.

We should not pollute the minds of the people of each region by claiming that the actual taxes were collected at one place. It is the actual consumption that determines who contributed how much in the tax collection.

Pakistan is passing through turbulent times and sane elements should create national harmony instead of national discontent. Unfortunately, we are not benefitting from the technology that could give people a glimpse of the contribution of taxes by each area.

In telecommunication, we used this technology and the results have shown that as far as the mobile phone and internet income is concerned, Punjab generates more revenue than Sindh because the collection is based on consumption in each area.

It has also shown that as far as the cities are concerned, Karachi being the largest and most literate metropolitan center generates highest revenue – much higher than Lahore and Islamabad combined. Khyber Pakhtunkhwa and Balochistan governments too get their fair share on the basis of mobile use.

The communication sales tax goes to each province on the basis of actual use, and there is no dispute in this regard.

We should develop products like that in order to ensure that at least those service taxes that are right of provinces, but are collected by the federal government, are fairly distributed. All regions of Pakistan badly need development and there should be no compromise on the quality of development.

There should be a national body comprising persons of impeccable reputation which should certify the quality of development work in shortest time by monitoring all projects through technology. This is not an expensive option, but would ensure uniformity of development throughout the country. We need national cohesion where provinces consider the importance of different projects. And if the need arises they should combine their resources for its execution.

The amount loaned can always be taken back with interest from the federal government that can pay it from the share of the province that took the loan.