The Institute for Policy Reforms has recommended the provincial governments to raise tax to GDP ratio by to at least 1 per cent of the GDP in the next three years, as the combined tax to GDP ratio of four provinces is a paltry 0.7 per cent of the GDP.

This was stated by renowned economist and IPR Managing Director, Dr. Hafiz Pasha while presenting a pre-budget report and proposals for the upcoming provincial budgets. He presented an account of the dynamics of fiscal and governance decentralization. He also reviewed performance of the provinces and presented recommendations.Dr Pasha said that provinces are not exercising their complete right of revenue collection and expenditures as about 28 ministries and departments like ministry of higher education, ministry of food security and ministry of health in the centre are overlapping in their work and interfering in provinces jurisdiction.

Bureaucracy is still hurdle in the increased resource transfer to provinces after the 18th amendment, he added. He proposed that provinces focus on those areas that had a large tax base and potential for progressive incidence. In particular, he mentioned: * Agricultural Income Tax

* Urban Immoveable Property Tax

* Provincial Sales Tax on Services In his view, revision of assessments based on price indexation could increase total collection without the need for significant administration inputs and without increase in burden on the taxpayer. The federation and the people of Pakistan had empowered the provinces to play their due role in development and citizen welfare.

The noted economist and former finance minister observed that it was up to the provinces to step up and meet their responsibilities by expanding the coverage and improving the quality of basic services like education, health and water supply and sanitation.

IPR would also like to see provincial governments develop a strategic vision of growth and development. He said that despite low share in revenue collection, high resource transfers has increased expenditure by provinces to one-third of total public expenditure nationally. Provinces have a share of 82% in educational and 92% in health services.

“There is a problem of plenty with the provinces as they were unable to meet their ambitious development spending and instead have built up large cash surpluses.”

IPR recommended effective implementation of on-going development projects by adopting the following policies:  Early completion of projects on which 75% expenditure have been made. Avoid the practice of block grants without approved new projects. Streamline procedures for approvals and releases.

Provinces may allocate a minimum of 15% of development budget to power projects. Likewise, they may also enhance allocations for the water sector. Preparation of medium term development framework by all provinces (Punjab had taken lead already).

“Commensurate with increased resources, provinces needed to prioritize implementation capacity and institutional strengthening, as inadequate spending resulted in a large combined cash sur

Dr. Pasha also dwelled on the need to enhance resource generation by provinces.

The participants of the event organized by the Institute for Policy Reforms discussed provincial budget priorities and proposals for the new fiscal year. Humayun Akhtar Khan, Chairman of the Institute and former trade minister, referred to the two major developments that have increased importance of provincial governments.  “The NFC of 2009-10 increased resource transfer to provinces, while the 18th amendment enhanced their autonomy, also creating concomitant accountability. Provinces may now show greater ownership in enhancing revenues as well as demonstrate improved performance, he observed.