Unified Tax Collection

Blindly replicating foreign models may not be ideal. Instead, we should adapt a system that aligns with our specific context.

The World Bank’s recent de­mand for Pakistan to estab­lish a unified General Sales Tax (GST) collection agency has sparked a critical debate. While the objective of streamlining tax collec­tion and broadening the tax base is undeniably desirable, the propos­al necessitates a closer examination through the lens of Pakistan’s unique eco­nomic and political landscape.

Firstly, the 18th Amendment sig­nificantly devolved power from the federal government to the provinces. This included the trans­fer of authority over several taxes, including aspects of GST. Imple­menting a unified agency in such a decentralised environment rais­es concerns about potential fed­eral overreach and infringement on provincial autonomy. Negoti­ations and a consensus-building approach involving all stakehold­ers are crucial to ensure a smooth transition that respects the exist­ing constitutional framework.

Furthermore, the success of such a unified agency hinges on Paki­stan’s current tax infrastructure. Are our existing systems robust and efficient enough to handle the complexities of a centralised collec­tion mechanism? The World Bank acknowledges issues like overlap­ping service taxes collected by both federal and provincial entities. Ad­dressing these redundancies and ensuring seamless interoperability are vital prerequisites before em­barking on such a bold reform.

Moreover, a crucial question re­mains – will a unified agency tru­ly deliver the desired results? We need an in-depth analysis of similar systems in other countries. Blindly replicating foreign models may not be ideal. Instead, we should adopt a system that aligns with our spe­cific context, considering the prov­en successes and failures of exist­ing models elsewhere.

Malaysia’s Goods and Services Tax (GST) system, overseen by a single agency, and Brazil’s SIPIC system for unified tax filing offer examples of efficient administration, reduced compliance burdens, and increased revenue collection. However, it’s im­portant to acknowledge that these success stories have their own unique contexts, such as a strong central government or robust digi­tal infrastructure, which might not be readily available in Pakistan.

India’s experience with a divid­ed GST collection system highlights the challenges of inter-state trans­actions and compliance. Pakistan can learn from these complexities and strive for a more streamlined collection mechanism. Canada’s HST system, where the federal gov­ernment collects both GST and PST in some provinces, offers a model of collaboration between federal and provincial governments that could be adapted to Pakistan’s context.

By studying these examples, Paki­stan can tailor its approach to a uni­fied GST collection agency. Factors like the country’s existing tax infra­structure, the level of federal-pro­vincial cooperation, and the capaci­ty for digitalization need to be taken into account. Learning from both the successes and failures of exist­ing models will enable Pakistan to design a system that addresses its specific challenges and fosters effi­cient GST collection without under­mining provincial autonomy

The World Bank’s emphasis on mobilizing revenue from under­utilised sources like agriculture, capital gains, and real estate tax­es is another point of contention. These sectors have historically en­joyed significant exemptions and presented enforcement challeng­es. Implementing effective taxa­tion in these areas requires not just a unified agency but also a comprehensive strategy to ad­dress ingrained resistance and po­tential political hurdles.

The 7th National Finance Com­mission (NFC) award of 2010 en­visioned increasing the tax-to-GDP ratio by 15% in five years through measures like taxing agriculture and real estate. However, this ambi­tious goal remained elusive. A uni­fied agency alone cannot guarantee success without tackling the under­lying issues that hampered the im­plementation of the NFC award.

The World Bank’s call for broad­er revenue reforms like closing ex­emptions and simplifying the Per­sonal Income Tax (PIT) system is commendable. However, these measures need to be carefully cal­ibrated to ensure fairness and mi­nimise negative impacts on vulner­able sections of society. Enhanced social protection mechanisms must be in place to mitigate the po­tential hardship caused by any re­duction in existing tax breaks for basic necessities. The Planning Commission’s proposed nation­al planning framework, emphasis­ing “synergy” between federal and provincial governments, is a step in the right direction. Achieving “bal­anced development and region­al equity” requires a collaborative approach that respects the spirit of both the 7th NFC Award and the 18th Amendment.

The World Bank’s proposal for a unified GST collection agen­cy presents a complex challenge. While streamlining tax collection and broadening the tax base are laudable goals, Pakistan’s specif­ic economic and political realities require a cautious and consulta­tive approach.

Majid Burfat
The writer is a freelance contributor.

Majid Burfat
The writer is a freelance contributor.

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