Lahore: The Punjab government would have to enhance cooperation between its three tax authorities to facilitate compliance, tackling tax evasion and reduce the cost of tax collection in a bid to capture much of its potential tax revenue, said a World Bank report.
Tackling these issues by using data integration, third party data links and audits etc. can significantly help the province to extend its capacity of collection Own Tax Receipts up to Rs400 billion, which currently accounts for only 0.8% of provincial estimated economic outlook.
The Punjab Finance Department will have to implement what World Bank has proposed in its newly sanctioned loan of $554 million under Punjab Resource Improvement and Digital Effectiveness (PRIDE) Program.
Under this program (2021-26), the province has been given a target to increase its value of Own Source Tax revenue to Rs300 billion by the end of this program. Punjab’s OST currently stands at Rs191 billion.
Increase in number of registered services sales taxpayers target under PRIDE has been set at 1,45,000, the number currently stands at 82,285.
Similarly, a target of increase in registered taxpayers who filed Sales Tax on Services return in previous year has been set to 77,500 from current number of 23,947 tax payers.
Other initiatives which provincial government have to take under this WB’s program includes database integration in tax administration. The bank said that currently no linkages among Punjab tax authorities’ database or with third parties exists though PRA and Federal Board of revenue has signed MoU for data sharing. By the end of this program Punjab tax authorities like PRA, Board of Revenue and Excise and Taxation department should have an access to shared data links to third parties.
To do this, enhance cooperation is one step. The other step which WB suggested includes streamlining tax instruments by abolishing some minor taxes with low revenue potential and combining the collection of similar taxes, which would simultaneously reduce compliance costs for taxpayers and administrative costs for tax authorities.
Simplifying key business processes for tax administration and automation like taxpayer registration, payment, arrears monitoring and refunds, appeals, litigation and feedback systems should be done by 2026 and enhanced capacity for revenue generation from real estate like complete properties market valuation studies for six cities using modern valuation methodology should be completed so the province may know the actual value of its non-tax revenues.
The report said that government of Punjab has made significant progress in public financial management (PFM) reforms. Based on the GoPb’s Public Financial Management Reform Strategy (PFMRS) for 2015–2020, the GoPb expanded the sales tax on services (STS) base and increased STS collections from Rs43 billion in FY13 to Rs106 billion in FY18, completed digitization of urban immovable property tax (UIPT) records with the addition of more than one million new properties to the tax net, automated the property tax invoice system and rural land records, and digitized stamp duty payments.
The report further said that an economic fallout from the pandemic is, however, expected to reduce the province’s OSR, leaving it with fewer resources to finance its emergency response and to sustain the already modest investment in human capital and infrastructure.