Sindh's weak property tax collection is causing huge losses to provincePakistan
Several trillion rupees worth of urban housing in Sindh yield a measly two billion rupees in property tax annually.
The Sindh government has recently initiated some corrective measures but no one expects the situation to change anytime soon.
A top officer in the relevant department, however, believes that the environment to take a leap in the right direction is more conducive today than at any point in the past two decades.
Besides the facility of computerised land records and the system of tax challans (demand notes) now in place, the loosening of the Muttahida Qaumi Movement’s hold over Karachi (which was hostile to property survey) has opened up a window of opportunity to reform in the property tax system.
The lack of political will, public resistance, special interests capitalising on the status quo, dependence on outdated property surveys, minimal tax rates, numerous exemptions, expanding Cantonment areas in high-end localities, low property valuation tables and an under-staffed collection machinery collectively attribute to the outcome, multiple sources in Sindh government indicated.
According to the data provided, the total collection falls short by about 30pc annually
No one dismisses corruption but opinions diverge on its extent. The projections of the cost of corruption vacillate between 15 to 50 per cent of the total revenue generated under the head.
There are six cities in Sindh that are rated for property tax. Of these six, five cities collectively raise less than 10pc of the total collection and the rest comes from Karachi. The political divide in the province has not helped either.
The ruling party in Sindh, Pakistan People’s Party, did not enjoy sufficient political base in Karachi. Besides other factors, it played a role in flouting the property tax collection regulations.
The huge wedge between the official and market valuation of property meant that transactions in Sindh became an exercise in expanding the parallel economy. For tax purposes a separate payment receipt is issued officially. It reflects a fraction of the actual cost of the deal. The residual payment is unaccounted for on papers. The system, therefore, pushes the law-abiding fair-earning citizens to join the mass of people under the legal radar for owning wealth illegally.
Sindh Minister for Excise and Taxation Mukesh Kumar Chawla was approached for comments but he opted not to respond. However, Secretary Excise Haleem Sheikh and his team were gracious and provided background information along with the current data on the subject.
According to high-placed sources, Chief Minister Murad Ali Shah’s team decided last week to launch the long-delayed property survey in Karachi with the support of the World Bank. The decision, according to Shah’s cabinet colleagues, was taken soon after he assumed office two years back but its implementation had been delayed for want of funding.
The last comprehensive property survey in Sindh was conducted in 2000-01 after a lapse of a good 42 years, under the direct supervision of then CM Dr Hafeez Sheikh. The relevant law mandates that the survey be conducted at a four years interval to expand the rating area and to gauge changes in the pattern of property utilisation.
“The collection shot up to double the very next year. In 2000 property tax collection was Rs680 million which rose to Rs1050m in 2001. This was despite the fact that rates were not revised up rather rationalised in select areas of the province”, a senior officer who headed the survey project in 2001 told Dawn.
According to the data provided to Dawn by the Directorate, Excise, Sindh, the total collection under the head falls short by about 30pc annually against the target. In 2016-17, the target was Rs2.7bn but the collection clocked at Rs1.88bn (69.8pc of the target).
For the current year the final target was fixed at Rs3.1bn. The total collection by end January 2018 was Rs1.3bn, Rs500m less than the benchmark for the month to stay on course to achieve the target.
Senior officers rejected an earlier press report that projected Rs6.3bn as the property tax target for 2017-18 or Rs4.7bn collected during 2016-17. “As far as I know Rs6bn is projected as property tax potential at the current rate by the World Bank. The property tax experts believe that the current collection can be tripled by fixing the system”, a former secretary excise told Dawn.
“Three years back with support of ADB a pilot property survey project was launched in Sukkur. The bid was won by Punjab Urban Unit that has done similar exercise in their home province”, an official informed, though he was unaware of the outcome or its completion.
Talking about the coverage of housing for the purpose, another bureaucrat noted that Sindh Local Government Ordinance of 2001 that transferred the subject to districts failed to serve the purpose as far as improvement in the collection of property tax is concerned.
“The brakes were applied on the reforms and they remained suspended for the next 10 years when the government reversed the decision. No, the resource mobilisation did not improve in the period when the responsibility of property tax collection rested with the districts”, he confirmed.
Commenting on the government’s tardiness in this regard an officer said that if nothing else, competition with the galloping Punjab will force the Sindh government to put its act together for the benefit of its constituents.
Published in Dawn, The Business and Finance Weekly, March 19th, 2018