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Decentralisation of GST Services and Vertical Imbalances in Pakistan

Author

Listed:
  • Iffat Ara

    (Social Policy and Development Centre (SPDC))

  • Muhammad Sabir

    (Social Policy and Development Centre (SPDC), Karachi)

Abstract

In Pakistan, provincial finances largely hinge on federal transfers from the divisible pool via the National Finance Commission (NFC) Award. While provincial share in tax revenue is less than 5 percent, provincial share in expenditure is over 25 percent, indicating dependence on federal transfers and the extent of vertical fiscal imbalance. The sustainability of public services provided by the provinces requires enough “own” revenues rather than reliance on federal transfers and grants. The 7th NFC Award and the 18th Constitutional Amendment reinforce the constitutional rights of the provinces to collect GST services. However, tax decentralisation is a complex issue in management of public finances in Pakistan. Its implementation seems difficult due to various factors like the difficulty to distinguish sales tax revenues from goods and services. This paper is an attempt to analyse the role of GST services in minimising vertical imbalances. The findings suggest that the vertical fiscal imbalance can be minimised by shifting the collection of GST services from the federal government to the provincial governments. They indicate that with full provincial share of GST services, provincial share in taxes would have doubled during 2006–10.

Suggested Citation

  • Iffat Ara & Muhammad Sabir, 2010. "Decentralisation of GST Services and Vertical Imbalances in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 479-495.
    • Handle: RePEc:pid:journl:v:49:y:2010:i:4:p:479-495
    as

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    File URL: http://www.pide.org.pk/pdf/PDR/2010/Volume4/479-495.pdf
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    References listed on IDEAS

    as
    1. Roy Bahl, 1999. "Implementation Rules For Fiscal Decentralization," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9901, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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    More about this item

    Keywords

    GST Service; Vertical Imbalances; Tax Decentralisation; Intergovernment Fiscal Relations;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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