The time has come for the provincial machinery to be tested after the 18th amendment and NFC award augmented their autonomy and resource pool. The finance ministry’s ambitious growth target is based predominantly on improved tax collection as the main revenue generation head, and the provinces’ endeavours will be crucial in raising necessary fiscal space.
As a first step, we need to break the good three-decade old habit of continuously slashing the development budget to finance non-development compulsions. In this regard, the Sindh government deserves its due share of credit for initiating the novelty of diverting non-development expenditure to free additional fiscal space that will in turn be directed toward substantial uplift and infrastructure projects.
In terms of tax collection, the provinces can start by identifying the head that is best suited for each. For example, Sindh financial authorities are focusing on generating unprecedented revenues from sales tax on the service sector. Of course, new initiatives will invariably run into initial bottlenecks. But once they are overcome, as is being done presently, we are confident that real revenue lies in taxing services. As things stand, the major source of revenue is the telecom industry, with marginal input from other sectors like hotels, property buying and selling, courier and airport services, etc.
Although it remains to be seen if the Rs25 billion target for sales tax on services can be achieved in the ongoing fiscal, the Sindh government’s efforts regarding convincing the centre to transfer sales tax collection to provinces have come to fruition in a strong way. And while employment and inflation are macro derivates and hence federal jurisdiction, it always helps to have a targeted, expansionary fiscal stance to accompany efforts at increased revenue generation, especially when countering a downturn such as ours.
Therefore, it is significant that in keeping with our infrastructural requirements, massive expansion projects are underway, aimed at creating six highways by leveraging public-private partnerships. These are scheduled to complete in the next six to seven years. Further, 6600km district road networks will also be constructed in different phases at an expected cost of approximately one million dollars. We are confident that Sindh’s road network will resemble Europe’s within one decade at the most.
It is important to note that at a time when the monetary outlook is compromised, such fiscal plans play the crucial part of unlocking productive potential, generating employment, stimulating consumerism and subsequently engineering the multiplier and increasing overall national income and tax revenues. Again, while it is premature to speculate on projected success by the end of the present fiscal year, the trajectory is encouraging. For this year, therefore, the main focus of the Sindh province is on this particular tax. It is better to concentrate attention and resources on one particular niche with required potential as opposed to following too many leads at the same time.
Other provinces should also concentrate on physical infrastructure upgradation along with taxation imperatives suiting their respective demographics. Regarding the debate of the agriculture tax, though, it must be put on record that the tax already exists, although its amount might be too miniscule to impact in a way that is needed at the moment. As such, the debate should not be about implementing the tax, but rather on improving its particulars. It is also important for Balochistan and KP to improve and expand their revenue bases, instead of depending on the other provinces to subsidise them.
Therefore, while the finance ministry and federal bureau of revenue go about meeting their targets, which is no easy task considering the present growth paradigm, it is important for the provinces to take centre stage. The NFC award has armed them with the necessary constitutional mandate to play a much enhanced role in revenue generation. All eyes will be on them throughout the fiscal as their contribution will be crucial in improving overall growth.
The writer is adviser to Chief Minister, Sindh, on Planning and Development
