The previous article had focused on the overall fiscal performance of Provincial governments in the first six months of 2024-25. The objective of this article is to look more closely on the process of revenue mobilization by the four Provincial governments.

There is need first to highlight some of the key provincial revenue magnitudes like the overall revenues-to-GDP ratio of these governments combined. It was 0.9% of the GDP in 2023-24. The tax-to-GDP ratio was 0.7% of the GDP, while the non-tax to GDP ratio was only 0.2% of the GDP. The overall revenue-to-GDP ratio was significantly higher in 2017-18 at 1.4% of the GDP.

There is a wide variation in the tax-to-GDP ratio of the individual provinces. It is the highest in Sindh at 1.4% of the provincial GDP, followed by Punjab at 0.8% of the GDP. It is very low in the two smaller provinces: Khyber-Pakhtunkhwa and Baluchistan. The two larger provinces generate almost 89% of the total provincial revenues.

Within provincial taxes, there is a wide variation in the level of revenues mobilized. By far the biggest tax is the sales tax on services, which generates almost 65% of total tax revenues. Next is other sources, with a share of 13%.

The issue is what are the other sources? Perhaps it will be a revelation that the biggest other source of tax revenue is a unique levy by the Sindh government. This is the Sindh development maintenance of infrastructure levy. This yielded Rs110 billion in 2023-24, equivalent to over 14% of the total provincial revenues in Pakistan.

There is need to identify the precise nature of this source of revenue. It was levied in 2017 on goods that are removed, transported or shipped for entering into or leaving the province from or for outside the........

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