World Bank urges Pakistan to eliminate tax exemptions.

ISLAMABAD -- The World Bank (WB) on Monday urged Pakistan to close all tax exemptions and bring incomes from agriculture, properties and retail businesses under the effective tax net to generate an additional revenue of up to four per cent of GDP (about Rs4 trillion) in the short term.

Speaking at a media briefing, WB's Country Director Najy Benhassine and senior economist Tobias Haque said the people in two major areas in the provincial jurisdiction - real estate and agriculture - had most of the untaxed wealth, which should be taxed by the provincial governments to be able to improve services and reduce the financial burden on the centre, which was financing these services.

Mr Haque said that real estate and agriculture should yield a revenue of 2pc and 1pc, respectively, of the GDP (or about Rs2.1 trillion and Rs1tr, respectively, according to official GDP size).

He said the bank had submitted a detailed policy paper to the government in this regard. The paper advocates increasing revenues through improved, expanded and progressive agriculture income taxation. This should be done immediately to 'reduce or refine the current 12.5-acre tax exemption threshold to bring more agriculture land into the tax net' and ensure appropriate categorisation of land on the basis of size, location, irrigation status and area-based productivity aspects into tax rates.

Also, provincial governments could immediately increase land taxation to 2pc of GDP by establishing reliable records of land ownership, harmonising the three valuation systems currently in use, and increasing property tax rates to match comparable countries.

There is also a need for an improved policy and legal framework to ensure that sizeable and growing peri-urban settlements outside current notified municipal boundaries are subject to appropriate land taxation.

The policy notes highlighted that Pakistan's revenue collection is among the lowest in the region, while tax rates on existing taxpayers are among the highest, showing rigid tax base in the absence of key sectors - agriculture, real estate and retail sector - paying their...