Khyber-Pakhtunkhwa (K-P) has been termed as the least business-friendly province, based on the number and variety of taxes it charges, while the Balochistan government has come across as a more pro-business regime to investors.
The official exercise was carried out to study and then improve the country’s ease of doing business ranking.
The Board of Investment (BoI) has undertaken the exercise at a time when businesses across the country have complained about the increased cost of doing business due to unprecedented imposition of taxation in the last few years.
It is the first-of-its-kind exercise in recent times that sheds light on the number of provincial taxes, as focus, so far, remained on federal taxation.
It was stated that provincial governments have been heavily taxing businesses and are charging up to two dozen kinds of taxes, said officials, adding that the K-P government was charging the maximum number of 24, followed by Punjab that is charging 17, Sindh 14 and Balochistan 13.
Businesses have to deal with almost half a dozen provincial departments to discharge their obligations, exposing them to direct interaction with government officials.
The BoI gave Finance Minister Ishaq Dar a presentation on the profile of provincial taxes, emphasising that multiplicity of taxes created problems in making investments and taking up business and commercial activities in the country, according to a handout issued by the Finance Ministry on Wednesday.
BoI Chairman Miftah Ismail suggested a reduction in the number of taxes and initiation of one-window operations to facilitate foreign investors. There was also a proposal that property tax on industries should be minimised to facilitate new investments.
Due to heavy taxation and the time needed to pay these, Pakistan’s ranking in paying taxes has further deteriorated to 172 this year, four notches below the previous position. South Asia’s ranking has improved to 124, which is still far below the ranking of OECD countries, standing at 53.
The officials said that the federal government should take provinces on board to find a way to improve the situation.
Currently, for starting a business, there are 47 kinds of tax payments. The average time to make these payments is 594 hours or 25 days and precisely one-third of the total income is gone in paying these taxes, according to official findings.
According to one proposal, the merger of excise and taxation departments with provincial revenue authorities will also lessen the time required to discharge these obligations.
Breakdown of taxes
The provincial governments are charging many taxes, which are not contributing significantly in their revenue generation, said officials. They said this has increased the cost of doing business besides adversely affecting the country’s global ranking.
For example, Punjab is charging taxes like ‘farm house’ tax, ‘luxury house’ tax, ‘entertainment duty’ and ‘education cess’ that contribute just Rs106 million or 0.09% in overall taxes. Sindh is charging professional tax, entertainment duty, cotton fee and land revenue tax, having a total contribution of Rs668 million or less than 0.7% in total revenues.
Similarly, K-P government is charging urban immovable property tax, provincial excise duty, transfer of property and agriculture tax, having combined contribution of Rs230 million or only 2% in overall tax collection. The Balochistan government is also charging agriculture tax, professional tax, capital gain tax and registration fee that are contributing only Rs31 million 1% in total taxes.
In order to improve the situation, the federal government is coordinating with the provincial authorities to reform their tax structures aimed at ensuring that the provincial revenues are protected but at the same time the investors’ obligations are also minimised.
