As governments confront the challenges of modern taxation, the integration of tax departments is not just a bureaucratic adjustment but a strategic initiative aimed at improving transparency, simplifying processes, and promoting economic growth.
Recent initiatives reflect a shift in states' tax policies, stressing the need for a well-coordinated tax administration to lower compliance costs, reduce government revenue collection expenses, minimize fraud, and decrease administrative burdens, ultimately advancing sustainable development and supporting the concept of a one-stop shop.
Integration brings about economies of scale, removing redundant functions (such as human resources, finance, and IT) while enabling data-sharing and operational coordination. Despite these clear advantages, Pakistan has yet to fully adopt such integration, even with ongoing calls for reform. At the provincial level, particularly in Balochistan, this integration is urgently needed due to its heavy dependence on the Federal government for revenue.
Balochistan's revenue collection is managed by multiple entities, including the Board of Revenue, Excise, Taxation and Anti-Narcotics Department, and the Balochistan Revenue Authority. Meanwhile, smaller contributions come from the Energy and Transport Departments, further illustrating the fragmented nature of the province's tax administration.
The Board of Revenue Balochistan was originally established in July 1972, following the dissolution of the one-unit system in Pakistan. Over time, various departments like Excise, Taxation, Anti-Narcotics, Mines and Minerals, Transport, and Zakat were separated from it. In today's era of artificial intelligence and advanced technology, consolidating these departments could bring about benefits that were previously unattainable in the 1970s due to the absence of sophisticated data analysis tools.
Provincial revenue authorities rely heavily on Pakistan Revenue Automation Limited (PRAL), a subsidiary of the Federal Board of Revenue (FBR), for revenue collection and management. To gain greater control over their resources, provinces should develop independent data banks, allowing them to manage resources autonomously.
Looking at regional examples, India's implementation of the Goods and Services Tax in 2017 serves as a model for integrating tax and revenue departments. This reform replaced a complex system of multiple indirect taxes at both central and state levels with a single, unified tax, greatly simplifying the tax structure.
In addition, India has integrated various revenue-generating bodies under digital platforms such as the Goods and Services Tax Network, improving data sharing, reducing redundancy, and enhancing tax collection and compliance efficiency.
Similarly, Bangladesh has been working since 2016 to integrate its customs, value-added tax, and income tax departments under the National Board of Revenue. This integration has improved inter-departmental coordination and streamlined tax processes for businesses and individuals, alleviating the burden of dealing with multiple revenue agencies.
In 2018, the Khyber Pakhtunkhwa provincial government, in an effort to increase revenue, agreed in principle to merge the Excise and Taxation Department with the KP Revenue Authority. This move was part of a larger strategy to strengthen the provincial revenue system, aligning with government objectives. In the short term, tax resources with high revenue potential should be allocated to the revenue agency that demonstrates excellence in all areas.
In this context, agricultural income tax and urban immovable property tax have yet to reach their full potential, despite being recognized as significant revenue sources. Studies show that the collection of agricultural income tax and land-based taxes amounted to only about Rs25 million annually in 2018 and 2019, mainly due to low rates compared to other provinces and widespread exemptions, especially in unirrigated areas of Balochistan.
The government allocated Rs21 billion for agricultural development between 2015 and 2020, averaging Rs4 billion annually. By comparison, annual subsidies for agricultural tube wells totaled Rs23 billion. This imbalance in budget allocation toward subsidies places a heavy burden on the government and society, with negative environmental consequences.
Additionally, low revenue from urban immovable property tax can be attributed to rapid urbanization and the sharp increase in capital and rental values of urban properties. The low revenue stems from factors like exemptions, property undervaluation, rate discrepancies, and ineffective administration, all of which contribute to tax evasion.
In conclusion, this initiative serves as a critical test case for integrating provincial revenue departments into a unified authority, paving the way for comprehensive reform.
The author is a Rasta fellow at the Pakistan Institute of Development Economics, Islamabad.
