ISLAMABAD: The Khyber Pakhtunkhwa government is seeking World Bank financing for a project aimed at strengthening the provincial government’s capacity for collection of sales tax on services and improving public investment management (PIM) and accountability of public service delivery in the water sector, sources said on Wednesday.
With the objective of strengthening public investment management, the World Bank will carry out an assessment of the current government capacity with reference to a well-functioning public investment system and development of a PIM action plan to address the main issues identified by the assessment.
The province’s ambition to bridge the gaps in service delivery and infrastructure has driven efforts to increase own source revenues. Without increasing own source revenues, it will be difficult for the KP government to realise its ambitious plans for investments in schools, health care, energy, irrigation and transport infrastructure.
The World Bank says KP has much scope to increase its own-source revenues and reduce its dependency on federal transfers. In 2013-14, total federal transfers accounted for 88.5 per cent of the province’s total revenues while own-source revenues accounted for 6.4pc. The remainder came from capital gains and foreign aid.
Own-source tax revenues contributed only 3.4pc of the budget. In 2013-14, the tax revenue collected by KP was estimated at around 0.5pc of provincial GDP as opposed to around 0.8pc for Sindh and 1.3pc for Punjab.
The sales tax on services is the main source of own-tax revenue in 2013-14 (54pc) followed by land taxes and the motor vehicle tax. Preliminary assessments point to a large tax gap, especially for the sales tax on services. KP has a substantial scope to increase its non-tax revenues, notably from the hydropower (hydel) generation, subject to better governance in public-sector enterprises (PSEs) active in this sector.
Per-capita income in KP is estimated to be 33pc below the national average while 39pc of households are estimated to be below the national poverty line. Another relevant indicator is the household size, which is strongly correlated with poverty in Pakistan.
Since the devolution of powers, the province has sharply increased spending on public services, albeit with relatively modest results