THE PTI-government in Punjab has set some ambitious targets for itself.

It plans to increase development investments to Rs1 trillion, pull 10 million people out of poverty, build 3.5m houses for 20m people and create 6m jobs in next five years. The attainment of these targets will largely depend on a drastic increase in the province’s income, especially its provincial tax collection.

The increase in provincial tax income, which is already falling behind the target for the present financial year, has become even more imperative as the Usman Buzdar government is reported to have agreed to contribute three per cent of the province’s share from the federal divisible tax pool every year to fund the development and other needs of the erstwhile Fata region from this fiscal year.

Based on the budget estimates for the present financial year, Punjab will have to forego Rs38.3 billion from its share for Fata at the cost of its own development targets.

On top of that the province also plans to run a surplus of Rs147.8bn during the present fiscal year to help Islamabad keep down the consolidated federal budget deficit at 5.1 per cent of GDP at the expense of its own annual development programme (ADP).

Punjab’s ADP has been truncated by almost 63pc to Rs238bn, in spite of a shortfall of up to Rs20bn in federal transfers from the divisible pool in the first five months of the year to November.

Given the fact that Punjab receives more than three quarters of its income from the divisible pool, the decision to support Fata’s financial needs will require it to step up its tax game. This way the province can reduce its reliance on federal transfers and increase development spending to boost growth, create jobs, improve quality of public services and support spiking current expenditure (which is estimated to rise by almost 24pc this year).

Indeed, the province has seen its tax collection improve significantly over the last few years, particularly after the creation of the Punjab Revenue Authority (PRA) to collect the provincial sales tax on services. Still, the provincial tax income remains only a fraction of the total revenues of the province.

This year, for example, the Punjab government has estimated its own tax receipts of Rs275.8bn to form around 16.5pc of the total provincial income.

The estimated share of the provincial tax income in its receipts has risen, albeit slightly, from last year’s original estimates of 15pc (or Rs230.9bn) due to more than 19pc increase in its target as well as a significant reduction in the provincial non-tax income estimates.

Although the government plans to grow its provincial revenues by 16pc over the next five years, the deceleration in both tax and non-tax receipts in the first five months of the current fiscal year reflects badly on the performance of the four-month-old PTI government.

Given the fact that Punjab receives more than three quarters of its income from the divisible pool, the decision to support Fata’s financial needs will require it to step up its tax game

The government has so far been able to collect only 27pc or Rs74.9bn of its tax target for the entire fiscal year compared with last year’s collection of 33pc or Rs77.4bn of its annual target.

Punjab is also struggling to meet its non-tax revenue target, raising just Rs18.1bn, down from last year’s number of Rs46.9bn, thus far, mainly because of non-transfer of net hydel profits of Rs41.2bn.

It is widely believed that the most heavily populated province, with a strong manufacturing and services base can easily double its tax collection in the medium-term. This will create room for financing its development expenditure and improve social and economic infrastructure for accelerating growth to 7pc as targeted by the draft growth strategy 2018/2023.

Tax analysts say the provincial services tax has a huge growth potential if the government only expanded its net. It could do so by moving towards a negative list of services that to be taxed, reformed administration, facilitated taxpayers, lowered the rate, stopped pilferage and strengthened the operational capacity and organisational network of the PRA.

Unless the Punjab government focuses on mobilising provincial tax revenue to reduce its reliance on federal transfers, it is unlikely to meet its development targets, create jobs and slash incidence of poverty, particularly in the southern districts of the province.

Published in Dawn, The Business and Finance Weekly, January 7th, 2019