Property taxes are part of a predominant taxing mechanism through which the municipal government raises up to 40% of the annual operating budget in most dynamic cities, contributing to the costs of services, streetlights, policing and sanitation. The abysmal yield of property taxes in Sindh highlights the decrepit state of our provincial and federal tax collection system. At a time when the IMF is broaching reforms that seek to increase taxes and induct more people into a weighted tax base, the issue of dwindling tax revenues is of paramount importance, more so as inflated reforms to counter it have unfavorable implications for those in the lower and middle strata of the income scale.
The issue of low tax collection has roots at federal, provincial and district levels. Where a recent legislative motion has been made to devolve levying at district levels, it is essential to understand that that not only do our local governments lack capacity, technology and expertise, tax collection also stands to be a tool that can be subverted at the hands of local spheres of politics and cronyism. Where ruling politics routinely manipulate and hamper municipal machinery to exercise their influence on the masses, taxes become a rhetorical political instrument rather than a revenue generating mechanism for development. In Karachi specifically, MQM used its clout to evade property surveys while the political rift in the province was further used by PPP and dissidents flouting the property tax collection regulations.
The lack of political will, public resistance, manipulations by the status quo, minimal tax rates, inflated exemptions and an under-staffed collection machinery have collectively attributed to low tax yields. Tax compliance is extremely weak also due to outdated valuation tables and property surveys that do not reflect actual market values. Such obsolete taxation tools are easily manipulated by those seeking to evade taxes and stash money through property. This black/white real estate economy where evading taxes through ‘benami’ transactions and differences in official and market valuation of property further erodes the tax base. Dwindling revenues can be further attributed to very generous government exemptions that seek to benefit only the elite who park their money in real estate. Given the complexity of our tax code and the loopholes it contains, it has never been easier, for those with means, to evade taxes on property.
The property tax arrears constitute a major problem and significant loss of revenue for any province. Databases and records should be updated every three years. Reforms need to allow for more equitable taxation relative to income brackets. If the government updates property values to current market prices, and stringently follows up on tax collection, it can allow for a reduction in the tax rates that would reduce the burden on tax payers.
We need to champion the importance of more people paying their due tax and better enforcement against those who don’t pay what they should as a crumbling tax enforcement system shackles our economy to aid and neocolonial reforms.