Pakistan needs to decentralise taxation powers immediately

This was the gist of the second day deliberations of a two- day executive workshop on provincial finance commissions and decentralisation here yesterday. Transparency and institutionalised mechanisms are essential for decentralisation in Pakistan, said Robert Searle, a senior public finance consultant and former member of Australian Commonwealth Grants Commission in his lecture on fiscal transfers under decentralised local government system in a devolution mechanism.

The workshop held its last session, underlining basic parameters for fiscal transfer institutionalization, empowerment of the local government with legal and taxation autonomy, and model-study approach.

The fiscal transfer institutionalization mechanism was discussed by Robert Searle while, empowerment of the local government with legal and taxation autonomy was the subject of Roy Bahl, the Dean of Fiscal Policy Georgia State University with the model-study approach explained by Musharraf Cyan, team leader from the Asian Development Bank, organiser of the workshop in association with the government of Punjab.

Searle said politicians should be involved at the advisory and initiation stages in creating a separate agency for running resource distribution for decentralised governments, while the Press should be engaged in ensuring transparency through its reports and comments.

The local governments should be involved by the government for input in creating such an agency, he said. For ensuring representation an association of local governments should be formed to nominate nazims as members of the committee. However, as the first step, he said, the amount of money distributable (bucket) among the governments should be determined, for proceeding onward to determining the status, powers, composition and functional aspects of the separate agency.

A constitutional amendment could be undertaken for empowering the agency with the task and to keep it functional to the desirable level it should be composed as smartly as possible.

Musharraf Cyan, the ADB team leader, discussed a model approach, to evaluate the present situation of local government and Provincial Finance Commission in Pakistan. A point raised about the poor functionality of the PFC was focused with the approach that the prerequisites in the connection should first be thrashed out to save the pangs of mis- launch.

Roy Bhal, Dean of the Georgia State University, said Pakistan would have to decentralise taxation powers to the district and local governments to raise local taxes so that they are accountable in delivery of services instead of the federal government finding itself in competition for the same tax base.

The federal government in Pakistan saw itself competing with provincial taxes and hence it disallowed them impose local taxes on the pretext that their tax take may reduce, he pointed out.

He said the centre allowed the provinces to impose agriculture tax, property tax and small business taxes because these taxes were difficult to collect and required higher cost and machinery. This competition in tax base should be broken through the decentralisation law.