Province heavily dependent on federation

Jun 29 - Jul 05, 1996

The North Frontier Province (NWFP) like other provinces is heavily dependent for its revenues on the federation — allocations from the divisible pool and grants as the province still has a very weak industrial base. It has not made any efforts to broaden the tax base and all its hopes revolve around the substantial amount from WAPDA's payment for hydel power generated in the province.

The budget for 1996-97 estimated total revenue at Rs. 27.14 billion which was 12.5% higher than the budget for 1995-96. Out of this 24.72 billion rupees would be from the federal divisible pool, WAPDA's electricity profits and federal grants, whereas province's own revenue generation would be only Rs. 2.34 billion — 9% of the total receipts.

Out of the total receipts 71% would be devoted to meet the current expenditure while the balance 29% would be spent on annual development programme. As in the case of the federation and the other three provinces a big chunk of the budget goes towards repaying the debt. This repayment in the case of NWFP was as high as one-fifth of the total revenue or in rupee terms Rs. 5.49 billion.

The tax measures proposed, amounting to Rs. 146 million would be the additional burden on the people who already pay taxes. This additional revenue would be mobilized by upward revision of stamp duty, motor vehicle tax, excise duty on advertisements on electronic media and registration and renewal fees on mobile telephones.

The upward revision of stamp duty was proposed on the plea that the rates were lower than the rates charged by other provinces. This would help in mobilizing Rs. 50 million.

The NWFP Development Cess has also been increased from paisas 18 to 20 per rupee which was estimated to yield additional Rs. 12.5 million.

The mode of entertainment duty has been revised and proposed to be charged on capacity basis yielding additional Rs. 11 million.

A new registration fee of Rs. 2,000 was proposed to be levied on mobile telephones with Rs. 500 as renewal fee, these would give an additional amount of Rs. 200,000.

The tobacco development cess at the rate of Rs. 100 per kg was imposed because tobacco was considered a cash crop giving excellent return to the cigarette manufacturing industry. The levy would be charged from buyers and not from the growers. This cess would add Rs. 40 million to the provincial exchequer.

Besides, Sindh, NWFP was the only province which had imposed farm tax. Although the tax yielded only 4 million rupees the province could boast of having collected more amount as compared to Sindh — a more prosperous and bigger province.

But, the orchards which abound in the province and which yield larger income have continued to enjoy the exemption. The federal government has accepted the principle of presumptive income in cases where income calculation or tax assessment posed a serious problem. Therefore, the same basis could also be used for determining the tax liability of the farms in the absence of any other workable formula.

In cases where farm deliveries are made to corporate or registered bodies like sugar mills, ginning factories, cigarette industry or Rice Export Corporation and Cotton Export Corporation, presumptive income tax could be realized by deducting a specific percentage while making the payment to the suppliers.

Tail piece

After examining the budget proposals of the federal and provincial governments and the expenditures a fact is determined that we as a nation live beyond resources and most of the money is spent on non-developmental projects. In order to minimize the budgetary deficit in the year to follow new taxes are imposed. As all the taxes fall in the category of direct taxes the trade and industry passes on the burden to the consumers. This on the one hand pushes the rate of inflation, reduces the purchasing power on the other hand shrinks the savings rate. While the non-developmental expenditure fail to yield any increase in GDP mopping up of money through the central bank also reduced the money avaialble for lending to the private sector. Therefore, if the present government really wants to give a shot to the ailing economy additional taxes will go wasted if not utilized properly.

Other points for consideration are: increasing the documentation, level, minimizing the discretionary powers of tax assessing authorities and reducing the corporate tax and income tax rates to collect smaller amounts from a larger number of tax payers rather than over burdening the already burdened limited number of tax payers.