Urban Immovable Property Tax (UIPT)
Khan, A., Olken, B. A. &Khwaja, A. I. (2012). Property Tax Experiment in Punjab, Pakistan: Testing the Role of Wages, Incentives and Audit on Tax Inspectors’ Behavior.
Estimates suggest that in Punjab, Pakistan only a small fraction of the true tax liabilities are collected and there is considerable potential to generate greater revenue through better collection of exiting taxes, which are critically hinged on the performance of tax collectors. The researchers with the Government of Punjab, aimed to conduct a randomized, controlled field experiment among property tax collectors, 480+ tax collectors from all major urban cities were selected by the government for participation in the project. By measuring multiple outcomes that can potentially separate corruption from low effort, the authors aimed to inform the channels through which these wage and incentive schemes work and the circumstances under which one or another may be preferred. The project grouped the teams in three groups; revenue based honorarium, revenue PLUS honorarium and conditional fixed wage honorarium. The study aimed to directly inform tax collection policy in developing countries by drawing on Punjab, to evaluate wage and incentive schemes for tax officers that may have a large impact on revenue collection and the overall efficiency of the tax collection system. This project will pave way for optimal government HR policy in the tax department. Results of this project will encourage governments in Pakistan and elsewhere to undertake more ambitious incentive mechanisms for public employees.
Nabi, I. & Sheikh, H. (2011).Reforming Urban Property Tax in Punjab. International Growth Centre.
The authors highlight that the property tax collected by Punjab is roughly one fifth of the collection by provinces in other comparable countries. They suggest that the collection can be increased to 25 billion after reforms. The 18th amendment should result in a change in the motivation of the provincial governments to collect their taxes efficiently since it has given greater provincial autonomy and responsibility. Following the Local Government Ordinance (LGO) 2001, UIPT has become a local government tax, in reality however it functions as a provincial tax subject to revenue sharing with City District Governments (CGDs) and Tehsil Municipal Corporations (TMAs). These district and tehsil institutions are notoriously inept in collecting the tax. UIPT is only one tenth of one percent of the GDP. Various reasons identified for this in the policy paper include; the lack of growth of the property tax base and undervaluation of property base by 45% to avoid being fairly taxed, tax administration needs to be strengthened and new rating areas need to be notified. The current tax rate on property, twenty five percent, is considered too high creating incentive for evasion and the differential in tax rate between owner- occupied and rented out properties in Punjab (1:10) is argued to be the most important source of corruption. The provinces have to tap into under explored sources of provincial revenue including importantly the urban property tax.