Khyber Pakhtunkhwa’s declining PORs

Increasing KPK’s provincial own receipts

By Tahir Ali

Khyber Pakhtunkhwa’s revenue receipts from external-both federal and foreign- may have jumped up in recent months but the provincial own revenue receipts (PORs) have been dismally low.

“KPK’s economy has suffered on two accounts: Its failure to increase its revenues from its own resources which has stemmed from the federal control of its main revenue generating sectors of economy and its inability to fully utilise the resources at its disposal,” said an official.

PORs stood at Rs7.3bn (5.5 %) of the revised revenue estimates of Rs133.5bn. Strangely enough, PORs have been lowered to Rs7.2bn (3.6 %) out of the projected revenue receipts of over Rs198bn this fiscal.

The gap between targets and actual recovery of provincial taxes has been on the rise. For example, revenue targets were Rs5.2bn, Rs6.2bn, Rs7.4bn and Rs7.5bn from 2006-07 to 2009-10 but the actual recoveries made were Rs4.7bn, Rs5.3bn, Rs5.4bn and Rs4.4bn respectively. Officials ascribe this gap to unrealistic target by finance department and the dilapidated law and order situation but according to industry sources, lack of incentives to entrepreneurs is also to blame.

Provincial receipts during financial year 2010 -11 are estimated only at Rs7.23 billion.

From 2005-06 to FY 2009- 10, income from direct taxes was Rs0.59bn, 0.76bn, 0.83bn, 0.78bn respectively. This year, direct taxes are expected to earn Rs1bn for the province as against budget estimate of Rs1.2bn last year.

Whereas in last year around Rs1.8bn were collected from indirect taxes as against the target of Rs2.6bn, this year revenue target of Rs2.1bn has been fixed for the year. Revenue from indirect taxes stood at Rs1.4bn, Rs1.5bn, Rs1.3bn and Rs1.3bn respectively during the above years.

Non-tax receipts stood at Rs4.7bn as against budget estimates of Rs3.6bn and. But for this year revenue target has been lowered down to Rs4bn from the source.

The future revenue targets are not that encouraging. Under the medium term fiscal framework, for example, PORs are projected at Rs7.6bn out of total projected total revenue receipts of Rs 223bn in 2011-12 and Rs8.1bn off Rs251bn in 2012-13.

Agriculture, despite being the biggest sector of its economy, has contributed only Rs0.017 to the provincial exchequer last year in direct taxes and around another Rs0.067bn in non-tax receipts.

KPK has set 6% as the target for increase in provincial tax collection. But the target and the economic revival and growth, the professed goal of the economic managers in KPK, may not be achieved if the existing half-hearted efforts to increase provincial revenue and increased security expenditure and pay and pension budget are taken into account.

KPK relies for about 93 per cent of its revenue needs federal transfers and local and foreign loans. It must increase its revenue generation potential to ensure sustained growth of its economy, to offset the negative fallouts of frequent delays in federal transfers and amid growing current expenditure.

The seventh NFC award had recommended that the federal and provincial governments should streamline their tax collection systems to reduce leakages and increase their revenues through efforts to improve taxation in order to achieve a 15% tax to GDP ratio by 2014. It also underscore the need for the two to initiate steps to effectively tax the agriculture and real estate sectors and develop and enforce mechanism for maintaining fiscal discipline.

By improving tax administration and tax collection system, wastage of money can be stopped while revenue can be increased. To be able to cope with the growing security, payroll and O&M expenditures, the province must invent new sources of income besides augmenting the existing ones.

“The staff strength of the provincial government has risen from 288,203 to 375, 935 posts over last five years. The revenue budget has increased to Rs128bn as against Rs80bn last year. Salary budget was Rs40b in the FY 2008-09, Rs48bn the next year and this year it has been jacked up by 59% to Rs76bn. The operation and management budget is 18 per cent of the current budget and has also witnessed sharp hike of 82 per cent from Rs13bn last fiscal to Rs23bn this year,” said an expert wishing anonymity.

“Police budget has been hiked from Rs9.6bn last year to Rs21bn this year. If the present trend of creation of more posts and subsequent increase in payroll continues, funds for meeting non –salary requirements in future will be severely depleted. This warrants increase in PORs,” he added.

Foreign and domestic debt management has been allocated Rs4.9bn and Rs3bn as compared to Rs0.69bn and Rs2.5bn of last year’s budget estimates. This is a welcome sign.

KPK should bring down its current expenditure by unifying several overlapping departments, restructuring of Public Sector Enterprises, rationalisation of government size, budgetary measures, substantial curtailment of foreign visits and of expenses on public offices, security and energy efficiency and conservation.

Industrial sector has the potential to foster real economic growth in the province. With a proper strategic framework, this sector can play an important role in addressing poverty alleviation by harnessing indigenous resources.

“The provincial growth strategy should focus on production of products that can be made from local raw material like marble, furniture and gemstones sectors,” he added.

Smuggling has been on the rise ever since. The informal economy of the province, believed to be three times bigger than formal economy, would have to be brought into tax-net.

The limited private sector presence is further shrinking as entrepreneurs are shifting to other provinces. Many of the erstwhile industrial zones are wearing a deserted look. This trend has to be reversed through investors’ friendly environment.

KPK has bulky and cheaper workforce available which can be an asset. But the workforce mostly comprises illiterate and unskilled persons. A huge number of them work overseas but remittances are also considerably lower as most of them work on low-paid unskilled jobs. High literacy ratio and skill training centres can tackle the problem.

The agriculture sector has also been neglected. The farm area is only 11 and 30 per cent of the total cultivable land in the country and the province respectively. And it may have been further decreased by residential and commercial use.

To get the province out of its current economic turmoil, importance of a clear vision, a sustained growth strategy and a strong political can’t be overemphasized.

A proactive and robust private sector’s role is a must.

To ensure industrial growth, the provincial government would have to build as many small power generation plants as possible.

The province should invest in labour intensive industries. Exports and value addition may increase provincial revenues.

A self support fund should be opened and locals and expatriates should be asked to contribute in it. The funds should be used for retiring KPK debts, start productive projects and for infrastructure development.

KPK and FATA house over 30 million of the 45mn wild olive trees in Pakistan. By making these trees productive, the province can produce about 75,000 tonnes of olive oil worth $1.5bn annually.

There should be a special plan for livestock farmers. Public or private ventures for boasting the beef and milk production in KPK can boast PORs.



About Tahir Ali Khan (Official)
I am an academic, columnist, and a social worker.

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