fiscal policy 1-resource mobilization taxation

7/23/2019 Fiscal Policy 1-Resource Mobilization Taxation

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Resource Mobilization and theStructure of Taxation

PUBLIC FINANC


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Introduction!ne of the "a#or functions of the

$o%ern"ent& collect re%enue b' taxin$(eo(le )ho "a*e (ro+t

,h' tax-Runnin$ the $o%t.Pro%ision of la) and order/efence

Infrastructure and social de%elo("entBuild roads0 schools0 hos(itals0 da"s etc.


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IntroductionTaxation structure %aries fro" countr' to

countr'Pa*istan& a )ell1de+ned constitutional

fra"e)or* deter"ines the nature of

resource "obilization and theres(onsibilities of each tier of the $o%t.!b#ecti%e& exa"ine the salient features of

Pa*istan2s taxation structure


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Le$islati%e FunctionsThe constitution of 3456 s(eci+es the

functions of the federal $o%t. and the(ro%incial $o%t.2sThe federal $o%t. has exclusi%e

res(onsibilit' for underta*in$ functionsunder the Federal Le$islati%eIncludes functions of a re$ulator' and ser%ice

nature

/efence0 external a7airs0 currenc'0 stoc* exchan$es0national hi$h)a's0 strate$ic roads and rail)a's etc.


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Le$islati%e FunctionsConcurrent Le$islati%e ListFunctions )hich can be (erfor"ed b' either

the federal or the (ro%incial $o%ern"ents0 orboth.

Po(ulation (lannin$ and social )elfare0 touris"0 andeducation

Residual functions are the res(onsibilit' ofthe (ro%incial $o%ern"entsA$ricultural extension0 irri$ation0 #ustice and

(olice


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Le$islati%e FunctionsThe existence of local governments is

not a formal part of the Constitution

Althou$h the 35tha"end"ent to the

constitution0 based on the LF! of 89980re:uires (ro%inces to establish ande"(o)er local $o%ern"ents0 it does notreco$nize local $o%ern"ent for"all' as

the third tier of the StateTable 39.3


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The Structure of Taxation

Al"ost all "a#or taxes )orth an' real(otential are )ith the federal $o%t.The (ro%incial $o%t. collect taxes that

the federal $o%t. does not collect0 andthe local $o%t.2s collect the residualtaxesLocal $o%t.2s cannot "eet their +scal

needs0 and therefore0 rel' hea%il' on

re%enue transfers fro" (ro%inces/ue to no constitutional (rotection

ordained to the local $o%t.2s0 the(ro%incial $o%t. can direct local $o%t.2s toincrease or reduce an' tax or to abolishit.


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Inter1;o%ern"ental Fiscal Relations

Before 8993Local $o%t.2s )ere extensions of the

(ro%incial $o%ts;reat deal of o%erla( bet)een these 8 tiers

Pro%incial tax "achiner' used to collectso"e taxes on behalf of the local councilSo(histicated (rocedures in%ol%ed in the

assess"ent of liabilities of so"e taxesRealize si$ni+cant econo"ies of scale


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,hile (ro%incial $o%ern"ents recei%edre%enue fro" the federal $o%t on thebasis of (o(ulation0 the local$o%ern"ents recei%ed re%enue on the

basis of collectionPro%incial $o%t.2s used to ha%e access tore%enue1de+cit $rants fro" the federal$o%t. that bailed the" out0 but no $rantsexisted for local $o%ern"entsLocal $o%t.2s "ade further (a'"ents

and transfers to (ro%incial $o%t.2s in thefor" of re%enue0 e.$. octroi


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laborate "echanis" of +scal transfersfro" the federal to (ro%incial$o%ern"entsMechanis" is sancti+ed b' the

constitutionNFC& constituted b' the President of

Pa*istan0 )hich is "eant to de%ise there%enue sharin$ for"ula for the di%isible(ool of resourcesIt is su((osed to announce an a)ard

e%er' < 'ears

In (ractice it is not constituted e%er'


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NFC a)ard of 3443&/istributes >9? of inco"e tax0 ex(ort dut'

on cotton0 excise dut' on tobacco and salestax fro" the federal to the (ro%incial $o%t.2s

The federal $o%t. has the res(onsibilit' of+nancin$ an' residual de+cits of thePro%incial $o%ern"ents in their recurrin$bud$ets

Share of each (ro%inceCross1subsidization


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3445 NFC A)ard&Unconditional transfersRe%enue sharin$ on the basis of (o(ulationStrai$ht transfers0 based on ori$in0 and include

re%enue fro" ro'alt' and de%elo("ent surchar$eson $as and crude oil0 and (ro+ts fro" h'droelectric(ro#ects

S(ecial $rants "ade to Balochistan and the N,FP0as these are less de%elo(ed than the other t)o(ro%inces


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Public Finance& The BasicFactsTable 39./e%elo("ent ex(enditure is far less than

non1de%elo("ent and current ex(enditure/efence and interest (a'"ents account for"ore than half of all $o%ern"ent ex(enditure


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Public Finance& The BasicFacts

Table 39.4&Total re%enue has not $ro)n substantiall' o%er

the last decadeTable 39.39/efence and interest (a'"ents ha%e sho)n

(ositi%e increasesPro(ortion of de%elo("ent ex(enditure in total

ex(enditure0 has continued to fallTable 39.3=&

Indirect taxes still account for 86rd

of totaltaxesShare of IM duties declined and that of sales

tax increased


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Issues in Federal Taxes

e' features and (roble"s of the federaltax s'ste"&!%er1all le%el of +scal e7ort is lo) and the

tax1to1;/P ratio has re"ained al"oststa$nant DE hi$h bud$et de+cits

!%erde(endence on indirect taxes DEincreases re$ressi%it' of the tax s'ste",ithin indirect taxes0 there is do"ination of

taxes on international trade DE distortsallocation of resources and encoura$es illicit

tradeNarro) tax base due to a )ide ran$e ofexe"(tions and tax e%asionPri"iti%e and out1"oded tax ad"inistration

and (rocedures DE corru(tion andinecienc'


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Issues in Federal TaxesSu$$estions $i%en b' the ,orld Ban*&re%enue $eneration should be $i%en s(ecial

e"(hasis in an' sort of SAPStren$then the tax base to increase bud$et

(otentialIncrease the elasticit' of the tax s'ste" b'

shiftin$ the e"(hasis of indirect taxes ondo"estic consu"(tion

A$ricultural inco"e to be sub#ected totaxationChan$e the structure of indirect taxes& GAT

Cut the excessi%e nu"ber of concessions


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Issues in Federal Taxes

Proble"s in the introduction of a GAT&Absence of (ro(er accountin$ and

docu"entation of transactionsReluctance to acce(t tax in%oicin$ of in(uts

and out(uts b' the "anufacturerPolitical reluctance to le%' ;ST on tea0

%e$etable $hee etc.Constitutional restriction on the extension of

sales tax to ser%ices b' the federal $o%ern"ent

Sales tax at 3


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Issues in Federal TaxesInco"e Tax&Narro) tax base!nl' 3.< "illion inco"e tax (a'ers in a

(o(ulation of 3


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Issues at the Pro%incial Le%elProble"s in the (ro%incial resource

"obilization structureLi"ited sco(e of resource "obilization0 as the

lar$e and relati%el' buo'ant taxes ha%e been(re1e"(ted b' the federal $o%t.Pro%incial $o%t.2s ha%e not been able to ex(loit

the a$ricultural inco"e tax and tax on %alueadded in the ser%ices sectorlasticit' of (ro%incial taxes is lo) DE lo)

$ro)th in tax re%enueIncenti%e en%iron"ent has not been conduci%e

to a hi$her +scal e7ort DE Auto"atic access toad hoc re%enue de+cit $rantsPoor tax ad"inistrators


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Issues at the Pro%incial Le%elNFC of 3443 sto((ed the (ro%ision of de+cit

$rants to the (ro%incial $o%ern"entsBroadened the (ro%incial tax baseThe incre"ental burden of "ost of the taxes

lies on the hi$her inco"e se$"entsIncreased the (ro$ressi%it' of the tax s'ste"

Urban i""o%able (ro(ert' tax still needsto be addressed


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Local ;o%t. Re%enues

Areas of refor"&The (ro%incial $o%t. collects "ost of the tax and

hands it o%er to the local $o%t.2s DE noincenti%e to reassess the tax rates

Pro%incial $o%ern"ents ha%e (re1e"(ted anu"ber of taxes )hich fall )ithin the +scal(o)ers of the local $o%t.2s0 e.$. "otor %ehicletaxChec* transfers fro" the local to the (ro%incial

$o%t.2s0 since this "echanis" is instru"ental inthe retardation of ex(enditure $ro)th at thelocal le%el

fiscal policy 1-resource mobilization taxation

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