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February 2, 2021

ľ¹ÏÓ°Ôº Group in Pakistan launched the ¡®Pakistan Development Policy Series (PDPS)¡¯ on February 2. The PDPS involves a series of webinars focusing on key reform areas critical to Pakistan¡¯s economic, social and development growth. Some of these discussions will inform the new Country Partnership Framework for the period 2022-2026 that is under preparation.

The first of the webinar series was  on ¡®Unleashing the Development Potential of Secondary Cities in Pakistan¡¯ focused on secondary cities and the important role they can play in contributing to the national economy, as a key part of Pakistan¡¯s path to becoming an upper-middle income country by 2047. Panelists in this webinar included:

Professor Li Zhang, Associate Professor of Urban Planning in the College of Architecture and Urban Planning, Tongji University. Mr. Zhang is a national certified planner. His research focuses on China¡¯s urbanization, spatial planning, small towns and rural development. He has published more than 100 papers on these issues in both English and Chinese journals such as International Development Planning & Review, Planning Theory & Practice, Urban Planning Review and Urban Planning Forum. He is also the Secretary General of the Small Towns Academic Committee of the China Planning Society.

Dr. Muhammad Omar Masud, Chief Executive Officer of the Punjab Urban Unit. Mr. Masud has a PhD in Urban and Regional Planning from Massachusetts Institute of Technology (MIT), a Masters in Public Policy from Princeton University and a Masters degree in Governance and Development from University of Sussex, Institute of Development studies.  He has 15 years of diverse management experience in civil services and has served as the Additional Secretary of Budget, Finance Department in the Government of Punjab in 2008.

Dr. Anjum Altaf, previously a Professor of Economics and Dean of the School of Humanities, Social Sciences and Law at the Lahore University of Management Sciences (LUMS) and later Vice President and Provost at Habib University, Karachi. He holds a PhD in Engineering ¨C Economic Systems from Stanford University. He previously worked at the World Bank (East Asia Urban Sector Development Unit) with a focus on Vietnam and China. His present interest is in the economic role of secondary cities.

Dr. Catalina Marulanda, Practice Manager for Urban Development and Land in South Asia, World Bank. She oversees a portfolio of roughly US$5 billion in lending operations under development and implementation in Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, Sri Lanka and The Maldives. She holds a Ph.D. in Civil Engineering from the Massachusetts Institute of Technology. Over the past 14 years at the Bank, Dr. Marulanda has focused on topics related to solid waste management, chemicals management, and brownfield remediation in Latin America, East Asia, South Asia and the Middle East.

The webinar was facilitated by Roland White, Global Lead for City Management and Finance, World Bank.

• Learning from the China example, secondary cities in Pakistan can make important contributions to a country¡¯s economic growth and create urban employment opportunities. In 2010, 46.2% of China¡¯s urban employment was from small towns.  Resource constraints may require targeting support to select secondary cities with economic potential rather than all secondary cities across the country. Key factors contributing to the development of secondary cities in China were competitive land and housing markets as well as a focus on bottom up development with local governments in the lead.
• In Punjab, the population in secondary cities (small/intermediate cities) are expected to grow substantially in the next 20 years which creates both challenges and opportunities. Key corridors for industry have started to develop and there is increasing recognition that secondary cities can play an important role in boosting economic production. Key policy challenges to secondary city development in the province have been: (i) a focus on Lahore with the designing and planning capacity of secondary cities largely neglected to date; (ii) challenges in balancing local priorities and top-down strategies in secondary; (iii) lack of a broader vision of a larger system of integrated cities and clusters in the province; and (iv) a need for a shift in thinking and greater recognition of secondary cities as being economically competitive with valuable contributions to make to value chains and the national economy.
• Globally, policies regarding cities is linked to the overall economic policy. In China, when the economic policy was rural industrialization, the development priority were towns/villages.  When economic policy shifted to manufacturing, the development priority also shifted to a focus on coastal cities. Implementation of economic policies require corresponding human capital investments. Finally, there is a need to effectively communicate these policies to those most impacted by these policies (citizens) ¨C which China did well.
• In Pakistan, secondary city development will require differentiated economic policies for different provinces rather than a national policy. These need to be matched with relevant policies regarding taxation, land use, human capital development and infrastructure development. Local governments need to be capacitated to fulfill their roles in implementing these policies.  
• China¡¯s small-town development was a devolved one with functions and powers such as planning and management devolved to local government. China¡¯s intergovernmental system is developed with local governments having the capacity to capture land value and generate revenue. China¡¯s cities compete amongst themselves and are rewarded by the national government based on their performance. Local government capacities in Pakistan in contrast are weak and own source revenue generation minimal. This will be a key constraint to secondary city development.

Conclusions

(i) There is clearly a need to develop a ¡®system of cities¡¯ in Pakistan ¨C different cities have different sizes and roles. Larger cities and small/medium cities also have different growth trajectories which are complementary. These 2 types of growth trajectories need to link in this broader system for overall growth of the country.

(ii) Substantial investment in infrastructure and connectivity (as was done in China) is important in order to promote a market economy. Access to the dense small/medium enterprises in secondary cities is critical. For the ¡®system of cities¡¯ to work well ¨C there is a need to support the local governments and their capacity to implement policies but also support larger infrastructure to support connectivity and balance territorial development.  Private sector can play a critical role in financing infrastructure but also in supporting SMEs, land markets.

(iii) Secondary cities need to support and sustain a good growth trajectory/pattern so that they do not fall into the same growth patterns that some of the larger cities have followed (e.g. Karachi) which are difficult to reverse later. Secondary cities can be supported to grow in a more orderly and sustainable way, addressing issues of climate change up front.

A better understanding of growth patterns in secondary cities is needed - data and analytics on the trends is critical. We can leverage the data that already exists in the Punjab Urban Unit to inform policies on secondary city development.

Our panelists included:

• Dr Waqar Masood, Special Assistant to the Prime Minister on Revenue
• Dr Michael Best, Assistant Professor of Economics at Columbia University, New York
• Ms Aqeela Mumtaz, Head of Corporate Accounting, Risk and Tax at Jazz
• Mr Ali Khizar, Head of Research at Business Recorder
• Mr Sebastian James, Senior Tax Specialist, World Bank

The panel was co-chaired by Mr Najy Benhassine, World Bank Country Director for Pakistan, and Dr Ijaz Nabi, Board Chairperson, Consortium for Development Policy Research (CDPR).

Pakistan has tried to mobilize adequate revenue to finance its growing expenditures. Between FY11 and FY20, Pakistan¡¯s average tax to GDP ratio has been only 11.2 percent of GDP increase by 2.2 percent of GDP between FY11 and FY20. During the same period, its expenditures averaged 20.8 percent of GDP for the same period, increasing by 4.6 percent of GDP. The rise in expenditure is partially fueled by decades of inability to raise adequate revenues. Lower revenue collection has resulted in contracting of considerable debt which at the end of FY20 stood at 93.6 percent of GDP (including guaranteed debt). Debt servicing in FY20 constituted over 27 percent of all expenditures, which further leads to contracting of fiscal space for the service delivery expenditure. Therefore, the necessity of mobilizing revenue, in an effective, non-distortionary way, has become essential for the country.

Pakistan has a tax gap estimated at 10.4 percent of GDP, a large part of which is due to low income tax collection.  Pakistan relies on indirect taxes to raise its revenue and income tax collection has been persistently low. Direct taxes (which is almost all income taxes) are 32.1 percent of total tax revenue of the country and 3.7 percent of GDP (FY20), below potential and below performance by comparator countries.

There is therefore considerable potential in increasing direct tax collection in Pakistan by improving both tax policy and tax administration measures.

Pakistan¡¯s income tax base is narrow. Over 81 percent of the total (filed) income tax collected is from 50,286 individuals and 4,192 companies. As per the latest income tax directory (FY18) published in September 2020, around 35 percent of the individual tax filers and almost 47.7 percent of the corporate income filers (companies and AOPs) pay zero taxes.

There are only 2.74 million individual income tax filers in the country, with an average tax paid of PKR 116,350 (equivalent to US$750) for the year. This constitutes only 4.1 percent of the labor force and 1.3 percent of the population.

Majority of the filed income tax is collected from businesses (almost 56 percent), with businesses and Associations of Persons (AOPs) collecting accounting for 66.3 percent of total filed tax collection. Companies and AOPs constitute only 3.8 percent of filers yet provide the majority of the tax revenues from direct taxes. This raises concerns of the corporate sector being overtaxed.

Source: Federal Board of Revenue (Tax Directory Analysis TY18)

Income tax collection is affected by distortionary policy and weak administration. These issues not only compromise the revenue collection, but open up space for tax evasion, and impact business environment by creating barriers to entry and growth for smaller business and have impact on potential equitable distribution of resources.  The key issues affecting income tax collection are detailed below:

1. Fragmented Tax Base

The income tax base is fragmented between agriculture and non-agriculture income. All non-agriculture Income tax is collected by the federal government, through the Federal Board of Revenue (FBR). Non-agriculture income taxes are filed based on a progressive graduated scale, with separate scales for salaried individuals, non-salaried individuals, and Association of Persons (AOPs), and for companies. As per the Constitution of Pakistan, agriculture income tax (AIT) is a provincial tax, while non-agriculture income tax is collected by the Federal Government (FBR). This fragmentation of the income tax base has led to a distortion in collection of direct taxes across the country especially since federal and provincial revenue authorities have minimal data sharing mechanisms, allowing for misreporting of income. This impacts overall revenues and allowing for a regressive tax structure in the country.

Since the mid-1990s, the provinces have been collecting their own AIT through their Board of Revenues, or Revenue and Estate Departments. These departments maintain agricultural and non-agricultural land records as well as collect AIT. Since land records, especially agriculture land records, are marred by socio-political disputes, collection of AIT is often not straightforward, and is collected significantly below its potential. In fact, in many provinces, AIT collection is a presumptive income tax as it is collected as a land tax.

This fragmentation of income tax gaps in the policy of taxing incomes as well as enforcement results in misreporting of income and tax evasion. As the tax policy and administration are weaker for AIT, one of the core issues that have arisen out of the fragmentation of the base is of tax evasion and misreporting of income. Taxpayers tend to declare their non-agriculture income as agriculture income, avoiding being taxed at high rates levied by the FBR at the Federal Government. This results in overall loss of revenue and many large agriculture land holdings paying much below the required taxes, perpetuating a tax structure that allows for an inequitable collection.

The current tax gap in AIT is estimated to be PKR 70 billion. Cropped agriculture contributes 6.6 percent to the GDP while only contributing 0.2 percent in direct taxation. A study on the revenue potential of AIT in Punjab shows that AIT revenues can increased by over 65 times if Income Tax Ordinance rates are applied to agriculture income. A similar study can potentially be conducted for other provinces to estimate the impact on revenues from merging the tax bases for agriculture and non-agriculture income.

2. Disproportionate taxation

Collection of income taxes from most sectors is not in line with their contributions to growth. Manufacturing sector contributes 13.5 percent to non-cropped GDP while contributing to almost a third of the income tax collection, while some wholesale and retail trade that contributes almost 19 percent to the growth of the country, but only 3 percent to the direct taxation.

Tax policy inertia (i.e. not changing tax policy in response to structural changes in the economy) leads to meeting revenue targets by overtaxing certain sectors, while not extending the tax net to certain sectors. Some sectors are undertaxed because of a deliberate policy stance, such as low taxation for the mining and quarrying sector to encourage economic activity in that sector. However, lower than proportionate taxation of the wholesale and retail trade, and transport sectors are an indication of large-scale informality in these sectors and shows weak tax enforcement efforts on adequate income tax collection from these sectors.

3. Tax expenditures

Direct tax expenditures were almost a quarter of the direct tax collection in FY20. Various exemptions and credits are given to income tax filers, for example, tax credits for investments in shares, for employment generation by manufacturers, for replacing plant machinery, exemption on commuted pension, exemption on government pension, etc. These expenditures create inefficiencies, and provide loopholes that encourage tax avoidance, and further narrow the tax base.

The income tax expenditures are primarily derived from exemptions in taxable income which account for more than half of the total direct tax expenditures. The second largest source of direct tax expenditures are tax credits, and within tax credits, tax credit for investment in balancing, modernizing and replacement of plant machinery.

Over 66 percent of tax expenditures is from 8 tax expenditure heads. Over 17 percent of direct tax expenditures are from tax credit on investment in plant machinery. Large tax exemptions (8.6 percent of total tax expenditures) are given on government pension that exacerbates the fiscal costs of the already generous pension system for the government. An additional 7.1 percent of total direct tax expenditures is tax exemptions on profits of independent power producers.  There is considerable scope to rationalize these exorbitant tax expenditures, especially on government pension, government income, and on profits of power producers, to reduce distortions in direct tax collection and improve direct revenue collection.

4. Tax Administration

Almost 70 percent (FY20) of all income taxes are collecting on withholding basis. Share of withholding taxes in total income tax collection has increased rapidly from 57 percent in FY13 to almost 70 percent in FY20. This raises questions of effectiveness of income tax being a progressive tax.

The collection of income tax derived from enforcement measures by FBR has declined over time. It has fallen from 12 percent in FY13 to just below 4 percent in FY20. In FY20, collection of demand showed the most significant decline in mode of collection falling by 40.8 percent, as compared to a decline of 11 percent in advance tax, and an increase of 13.7 percent in withholding taxes.  This could indicate a weakness in the enforcement and audit processes, which are slow and allow opportunities for rent-seeking resulting in possible significant tax evasion.

In addition, data issues between the FBR and provincial revenue authorities is minimal and can further aggravate issues especially related to fragmentation of taxes. For example, with Agriculture Income Tax there is no mechanism for FBR to check whether the income tax has been paid to the provincial authorities and whether the assessment was correct. It is also not possible for provinces to be aware if income is being declared as agriculture income to the FBR which they can then capture as part of AIT.

Tax expenditures for income tax are calculated mostly based on data from third parties, since the filing dates for the fiscal year are often after the completion of the fiscal year. The data is not revised based on actual filing. 

Khan, M, Khan M. S. 1998. Taxing Agriculture in Pakistan, International Monetary Fund.

FBR Tax Expenditure Report FY20

Mukhtar and Nasim. Agriculture Taxation in Punjab ¨C The Missing Billions, IDEAS Working Paper July 2013. Estimates use the ITO 2001 for FY2010.

Income from cropped agriculture is taxed

Agriculture income tax is collected as a presumptive tax on agriculture land.

Following are some possible reforms that can help address the issues highlighted above:

1.1.   Harmonization of income tax

¡¤       Harmonize the income tax bases, with agriculture and non-agriculture income tax being taxed on the same principles.

¡¤       Increase capacity of the Boards of Revenue to assess and collect agriculture income tax at the provincial level. An option is that agriculture income tax could be collected by FBR can then be transferred to the respective province as straight transfers. This option will not require a change in the constitutionally determined revenue bases.  This would lead to a reduction in administrative costs, and potential for increasing own-source revenue by focusing on other taxes. Another option is that the more recent Revenue Boards and Revenue Authorities that collect sales tax on services for the provincial government could be given the task of also collected AIT on similar principles to those of non-agriculture income.

These reforms can help correct the fragmentation of the income tax base, resulting in ease of reporting income for the citizens; and potentially high revenue collection nationally, as there will be no incentive to misreport income, and income tax records can be cross-referenced against AIT records.

Measures to assess agriculture income appropriately would need to be established and some rebates and tax credits may have to be offered initially to encourage people to report their agriculture income.

1.2.   Rationalization of tax expenditures

Rationalization of tax expenditures could allow them to be aligned on technical grounds rather than political ones, allowing for increased efficiency and improved tax collection. Issuing tax expenditures should be an act of parliament and limit on tax expenditures as a percent of GDP should be instituted to allow for fiscal discipline and to prevent distortion in the income tax base.

1.3.   Reviewing the income tax rates

Conduct analysis on the potential loss in tax collection from allowing generous income tax thresholds and rates and adjust the tax structures in line with regional comparators to help income tax collection. While progressivity of the income tax system may be affected by this reform, especially if thresholds are revised downwards, the costs of this reform may be viewed against revenue benefits, and other better targeted fiscal instruments may be considered to negate the negative effect on the lower-income levels.

1.4.   Tax administration improvements

Automation of taxation systems, strengthened tax enforcement procedures, instituting risk-based audits, and having strict monitoring measures can help improve tax administration not only for income tax but other FBR taxes as well, potentially boosting revenue collection. Capacity to assess incomes, especially for agriculture income, needs to be built and improved, and aided with the latest technology.

It is important to allow for better data sharing across revenue authorities, especially between federal and provincial revenue authorities. At present, there is no means provinces to check if someone is filing taxes with FBR stating they have agriculture income. The data sharing mechanisms can help not only improve tax enforcement and audit efforts, but also help guide tax policy reforms.

Addressing the issues in income tax policy and administration issues requires strong intergovernmental coordination. Coordination between the federating units is weak and therefore strong institutional arrangements for effective intergovernmental coordination are required to ensure that the Pakistan functions as a single effective ¡°tax market¡±. The recently established National Tax Council which has Finance Ministers from all federating units as members and representation from tax authorities can help adopt solutions to some of these problems with income taxation.

Income tax returns ask filers to specify their income as agriculture income and provide proof of payment of AIT.

Ms. Ume Laila Azhar: Executive Director, Homenet Pakistan

Ms. Marty Chen: Senior Advisor, Women in Informal Employment: Globalizing and Organizing, (WIEGO)

Mr. Sergei Soares: Senior Researcher, International Labour Organization

Ms. Maria Beatriz Orlando: Lead Social Specialist, World Bank

Ms. Haseena: Micro-business owner and home-based worker, Karachi

The webinar was chaired by Najy Benhassine, World Bank Country Director for Pakistan, and moderated by Uzma Quresh, Senior Social Development Specialist, World Bank.

Summary

The are 260 million home-based workers around the world. Approximately 224 million are in developing and emerging countries and approximately 35 million in developed countries. Out of which 147 million (57 percent) of them women and almost two-thirds of the world¡¯s home-based workers reside in Asia and the Pacific.  The Female Labor Force Participation (FLFP) rate in Pakistan is 20.1% (LFS 2017-2018). Low FLFP rate is due to most women concentrated as homebased workers in the informal economy. Women working in the informal economy are mostly homebased workers. Homebased workers are rising in Pakistan due to global trends such as, garment and textile industries evolving due to the ¡®Rise in Fast Fashion¡¯, the rise of the digital economy, shift from agricultural to non-agricultural work in rural economy, rural to urban migration as Pakistan is rapidly urbanizing. Some gendered challenges include social norms, limited mobility, lack of access to technology, networks, capital, low education levels, domestic responsibilities.

Homebased women workers are not included as a separate category in the Labor Force Survey (LFS) or national census, this is consequently reflected in the low FLFP rate in Pakistan. Sindh Assembly passed the Homebased workers Act in 2018. Punjab adopted the Act and the legislative draft is still under discussion. The other 2 provinces are following suit. With the implementation of the legislation, a large workforce will be reflected in the national databases. Having a legal entity and recognition will allow homebased workers to have access to social protection, benefits, minimum wage etc. These laws and policies should ensure co-ordination between district and regional networks and create a proper network for the registration and verification of home-based workers. The government has committed to a budget to facilitate the implementation of the Acts. Further, Grassroots mobilization for homebased workers is important for their empowerment and the accountability of the government

Homework has existed historically and is not a new form of production. Home-based workers are those who produce good or provide services in or around their own home, (including in a structure attached to their home) and can be found in all branches of the economy. This includes work in traditional sectors, modern sectors, and professional services. The total percentage of homebased workers in Pakistan is lower than the average percentage of homebased workers in South Asia but %age of women homebased workers is particularly high in Pakistan. Homeworkers are mostly women because they are unable to avoid domestic responsibilities. The characteristics of homebased work make it attractive for women such as flexible hours, adapted workplaces, workers with disabilities can use their home as a workplace. The macro advantages are, reduce in pollution levels, lowers office space costs etc. The disadvantages of homework include the large wage penalty, social protection gap, lack of appropriate training, occupational and health hazards, invisibility of workers, challenges in organizing and collective bargaining, child labor. Wage penalty for Pakistan is 32%. Homeworkers with similar occupations earn a third less than non-homeworkers in Pakistan. Earnings distribution in Pakistan are such that skilled teleworkers are most highly paid. The greatest number of home workers are in the industrial sector and are the lowest paid.

As of 2019, there are 260 million home workers in the world. With the pandemic, the number of homebased workers has risen around the world to 600 million. More than 80% of homebased workers have not been able to work globally. Approximately 69% of homebased workers have not been able to work in South Asia. Homebased workers earning is 10% or less than 10% of what they use to earn pre-COVID. Only around 40% of homebased workers receive some form of government food aid or cash grants.

Recommendations

• Ratify conventions 177 and focus on implementing specific laws/provisions on homework
• Social registry is hugely important to ensure workers are registered followed by creation of a social protection system for homebased workers as well as provision of financial support, access to working capital and creating supportive policy environment
• Community Childcare, Self-Help Groups, Skills development, Training and Certifications and rebuilding supply chains to support HBWs
• Improving access to a health care and ensuring fair compensation for work
• Improving LFS through better data collection. This can be done by including a question on place of work in all labor force surveys and a question that distinguishes between self-employed, employees and subcontracted etc.

This edition of the webinar series titled ¡®Fighting Poverty by Getting Girls and Boys to Learn¡¯ focused on the problem of access to quality education for Pakistani girls and boys and its significance for Pakistan¡¯s path to becoming an upper-middle income country by 2047. Panelists in this webinar included:

Dr. Cristian Aedo, Practice Manager for the South Asia Region Education Global Practice. He has led investment loans and development policy lending for strengthening human development outcomes through better accountability and relevant skills, general education. He was worked in multiple regions of the World. Dr. Aedo holds a PhD in Economics from the University of Minnesota and a master¡¯s in economics from the same university.

Dr. Quratulain Bakhteari, Social entrepreneur and community organizer known for founding the Institute for Development Studies and Practices, Balochistan. Dr. Bakhteari pursued a Masters from Karachi University and later completed her Doctorate from University of Technology in Loubrough, England. As a result of her tremendous effort and dedication she was nominated for the Nobel Peace Prize in 2006.

Mr. Imran Sikandar Baloch, Secretary of Planning and Development Board, Punjab. He is a civil servant from the Pakistan Administrative Service. Over a career of 20 years, he has worked in different positions in the fields of education, health, agriculture, and regional planning. Mr. Baloch has served as Special Secretary and later Secretary of the School Education Department, Government of Punjab. He has a M.Sc in Educational Studies from the University of Oxford.

Dr. Baela Raza,  Chief Executive Officer at Idara-e-Taleem-o-Aagahi (ITA) and a Commissioner on the International Commission on Financing Global Education Opportunity. Idara-e-Taleem-o-Aagahi (ITA) or the ¡°Centre of Education and Consciousness¡± Public Trust is a response to the crisis of education and multiple crises forming the nuts and bolts of the Education Challenge. Dr. Raza had a PhD in Comparative Education from the University of London and a MPhil from the same university.

The webinar was facilitated by Mosharraf Zaidi, Analyst, Development Practitioner, Columnist and Senior Fellow at Tabadlab.

Summary

• Pakistan faces an unfinished agenda in terms of educating its children. The learning poverty in Pakistan is at 75 percent. 19 million children of school going age are out of school. ľ¹ÏÓ°Ôº is focusing on girls¡¯ education by targeting basic elements to reduce learning poverty (teacher, capacity, safe schools, etc.) to have impact at scale, along with the focus on increasing equity and sustainable expansion of the system to accommodate the most disadvantaged.  The COVID 19 pandemic has made the challenge steeper. It is expected that learning poverty would increase from 75 percent to 79 percent because of COVID related disruptions. Recent data from a phone survey collected by the World Bank shows that between 1 and 2.5 million additional children are leaving school and may never return owing to economic and social pressures. These set of challenges exacerbated by COVID 19 ought to be addressed through (i) interventions at the supply side - these would include improving access to  early childhood education for girls, making schools safer in terms of security and availability of hygiene facilities especially for girls, improving the quality of teaching by focusing on professional development of teachers, and increasing the proportion of female teachers at the secondary level, and improving the education systems focusing on data, transparency, financing and assessments; (ii) interventions at the demand side ¨C these would include engagements with families and communities, informational nudges for behavioral change, interventions to navigate social norms, and communications campaigns.
• In Balochistan, school dropouts and related challenges are compounded by 4 salient factors. These include poverty, security, exposure to violence and trauma at a societal level, and little consideration for issues faced by girls during puberty at home or at school. One positive development from Balochistan is that there is a palpable demand for education among citizens. Despite this positive development, dropouts persist. Highest dropouts happen the 6^th grade level at the time girls enter puberty. There is no help available to these girls to help them navigate through this phase which results in a spike in dropouts. Furthermore, there is no support system available for students who are exposed to increasing cases of violence and security issues in a province like Balochistan. The way forward is for schools to become centers of compassion for adolescents, and young adults. Unfortunately, this acknowledgement and understanding is missing from the education discourse that focuses exclusively on inputs like teacher trainings and buildings etc.   
• In Punjab, the data shows that education indicators are intricately linked to poverty. Data shows that majority of the out of school population comes from the first income quintile. Girls from the first quintile living in rural areas form the most disadvantaged group. Acknowledging how education is linked to poverty is important in designing interventions that target particularly disadvantaged contexts. The only realistic option for the poorest of the poor remains public schools despite growing uptake of private sector or PEF schools among other demographics. The data shows that worst education indicators are reported from poorer districts in southern and south western parts of the province. Districts like Rajanpur report much higher dropouts than affluent districts like Attock. Within the poorer districts, dropouts among girls are much higher than among boys. Issues contributing to this trend are distance from home to school and unavailability of high schools. The solution lies in targeting public schools in lagging districts that require greater investment in the form of supply side interventions.    
• The persistent challenge of equity in education has been exacerbated due to COVID 19. It is expected that COVID 19 will affect girls¡¯ education disproportionately. Data shows that distance learning initiatives - though necessary - are not sufficient at addressing the disruption caused by COVID 19. Robust efforts are needed to coalesce great work being done by non-governmental sector and aligning it with government¡¯s priorities and plans. The governments should use the work being done by NGOs to inform what is effective and scale it. To address the persistent challenges in the coming years, a greater push is required to increase government spending on education from 2 percent to 4 percent of the GDP.     
• Long-term follow-up of the LEAPS study initiated in 2003-04 shows interesting insights about girls¡¯ education. The cohort of girls who were in grade 3 or 4 in 2003-04 are now in their 20s. Data shows that 31 percent of LEAPS sample have taken the matric exam. While more girls dropped out at the start, the enrolment numbers were found to be quite similar for girls and boys by matric. This indicates that if girls can sustain through early years in school, they are likely to complete school. The data also shows some factors that reduce the economic returns to education for girls. Constricted mobility is a key determinant of lower returns in the labor market. As opposed to 80 percent of males, only 11 percent females from the LEAPS sample are working. Women who work outside of their village show much higher returns that those who work within the village. The returns are even higher for women who work outside their district. However, due to mobility issues many women are unable to work outside their village or district. Women lead lives that are very strongly regulated resulting in challenges of mobility and socialization that are much more severe than those faced by men.   

Conclusions

(i) There is a need to view education especially for girls from a societal lens. The first step in doing so is to acknowledge that challenges for girls¡¯ education and their implications go beyond the conventional confines of the ¡®education space¡¯. Designs of interventions need to consider the broader societal context that informs the challenges for girls¡¯ education.

(ii) Education is not a small vertical on its own, but it has implications in political and social terms. The issue of improved spending to match the global standard of 4 percent of GDP is one aspect that needs to be advocated by actors like the World Bank, NGOs, and CSOs with political as well as economic interlocuters. 

(iii) For response strategies and interventions to be effective, it is important to ensure that they are targeted towards the poorest, most marginalized segments of the society. The starting point for doing so is to target the poorest districts across the country.

(iv) It is important to retain focus on public schools as public schools are the bedrock that determine the standards in the private sector. Standards in private schools improve only when the standards in the public sector improve.

It is important to visualize schools as places of compassion that provide mental and emotional relief to adolescents and young girls. Psychosocial support, especially for young girls is crucial to address the issue of dropouts.

The fifth webinar of ¡®Pakistan Development Policy Series (PDPS)¡¯ focused on how Pakistan can close the tax gap on agricultural income. The agriculture sector contributes around 19 percent to GDP in Pakistan but its share in total tax revenue falls significantly short of its contribution to economic growth and employment. The webinar focused on reforms in policy and tax administration that can increase income tax revenue from the agriculture sector and the challenges that have hindered significant progress in this area so far.

The webinar was co-chaired by Mr. Najy Benhassine, World Bank Country Director for Pakistan, and Dr. Ijaz Nabi, Chairperson of Consortium for Development Policy Research (CDPR) and Country Director of the International Growth Centre (IGC) Pakistan. The discussion was moderated by Ms. Arifa Noor, Journalist and Lead Anchor for News Wise, Dawn News. Panelists in this webinar included:

Mr. Taimur Jhagra, Provincial Minister of Finance and Health, Government of Khyber Pakhtunkhwa. Mr. Jhagra has been a member of the KP Provincial Assembly since 2018. Prior to joining the political party Pakistan Tehreek-e-Insaf and taking up the public office, he was a partner at Mckinsey & Company where he led public sector engagement in Pakistan. He holds an MBA from London Business School.

Dr. Hanid Mukhtar, Former Senior Economist at the World Bank and Fellow at the CDPR. Dr. Mukhtar worked as a macroeconomist at the World Bank from 1990 to 2014 where he worked on macroeconomic and fiscal issues and contributed to several World Bank policy reports. He has authored numerous research papers which have been published in leading economic journals of Pakistan. He has also taught economics at the Quaid-i-Azam University, University of Massachusetts at Boston, North Eastern University, Boston University (Visiting Associate Professor), and Applied Economics Research Centre. He holds a PhD in Economics from Boston University.

Mr. Tariq Bajwa, Former Secretary of Finance, Revenue and Economic Affairs, Government of Pakistan. Mr. Bajwa has held several public offices including Chairman, Federal Board of Revenue; Governor, State Bank of Pakistan; and Secretary, Economic Affairs Division. He holds a Master¡¯s in Public Administration from Harvard and is the only Pakistani to ever win the Littauer fellowship.

Mr. Tuan Minh Le ¨C Lead Economist at the World Bank. Prior to joining the World Bank, he worked at the Public Finance Group, Harvard Institute for International Development, Harvard University, and was Assistant Professor of Economics at Suffolk University.  He has engaged in a broad range of teaching, research, policy consulting and operations on public finance in Asia, Eastern Europe, the Middle East, and Sub-Saharan Africa.  His publication focuses on tax policy design, revenue administration, and public investment management.  He obtained his Ph.D. degree in Public Policy from Harvard University.

Mr. Aamer Hayat Bhandara, Farmer and Co-Founder of Agriculture Republic. Mr. Bhandara co-founded the Agriculture Republic as a farmer support network that works to find innovative solutions to issues related to food security and impact of climate change on agriculture practices, among others. He also manages his family business, Hayat Farms and has served as an elected member of a district council in Punjab from 2016-19 where he served on district and divisional committees of Agriculture Department and Price Control Committee. Mr. Bhandara has studied politics and journalism from the Bahauddin Zakariya University.

Context

¡¤       Agriculture sector, specifically crops and orchards, contribute 7.0 percent to Pakistan¡¯s GDP (FY20) and provide employment to a sizeable share of the working population.

¡¤       However, the income tax revenue generated from the agriculture remains low, at only 0.06 percent of GDP (FY20). Despite its estimated potential to generate around PKR 70 billion in revenue, the tax revenue from the sector has not increased over the years. In 2018, Pakistan¡¯s agriculture tax gap was estimated to be around Rs. 69.5 billion.

Issues

¡¤       Tax policy: The agriculture income tax is treated as a land tax in Pakistan which distorts reporting of agriculture income and reduces the amount of tax revenue that could be generated from the agriculture sector.

¡¤       Tax administration: While the Federal Government collects tax on all other sources of income, the agriculture income tax is collected by the Provincial Governments creating issues of coordination and information sharing. Provincial Governments also lack the capacity and required information at farm level to collect agriculture tax as an income tax.

¡¤       The current system encourages misreporting as tax-payers report agriculture as source of income to avoid a comparatively higher level of tax on income from non-agriculture sources. 

¡¤       In developing countries as opposed to developed countries, agriculture is labour intensive and subsistence farming is more common. Consequently, land tax is more commonly used to substitute for income tax. One developing country example is Mauritius which has implemented a system for sugarcane and tobacco farmers to report agriculture income. Under its tax system, farmers can choose to either pay tax based on presumptive/predetermined input costs and sales calculated by the revenue agency or they can opt for self-declared income.

Recent Reforms

¡¤       The Government of Khyber Pakhtunkhwa (KP) has implemented new reforms this year to improve revenue generation from the agriculture sector. It has introduced two key initiatives through Budget FY22:

    o   Reduced agriculture land tax to zero.

    o   Increased the exemption limit for agriculture income tax from PKR 400,000 to PKR 600,000 per year while implementing the same regulations that the Federal Board of Revenue applies on income from all other taxable sources.

¡¤       The Provincial Government hopes that by doing so the tax administration system will reduce the burden on small farmers, eliminating the need for Patwari system and the space for rent seeking behavior from middleman. At the same time, it is also hoped to increase agriculture income tax as a streamlined system may attract more taxpayers to self-declare agricultural income.

Conclusion

¡¤       Need for close collaboration between Provincial Boards of Revenue and the Federal Board of Revenue as provinces require information held by the FBR to verify self-reported agriculture income, conduct audit, and improve tax administration system.

¡¤       Tax administration system should protect small farmers who are engaged in non-commercial, small scale subsistence farming.

¡¤       Self-reported voluntarily declared agriculture income is currently taxed below the tax rate applied on the same amount of income from non-agriculture sources. This difference in tax rates should be eliminated to target tax avoidance, misreporting and inequality in tax system.

Automated/digitized land tax system in Punjab is not linked to landowners¡¯ national identity card numbers. As a result, the automated system is not able to report the total size of land owned by farmers across different mouzas. The FBR¡¯s database can be used to close this gap in the system and improve information availability for tax authorities in provinces.