Sub-national government taxation: case of property taxes in Punjab, Pakistan

Property taxes tend to be under-used globally, especially in developing countries. This is particularly true in Pakistan. To explore the reasons, I studied policymaking and administration in relation to the recurrent (annual) property tax in Punjab, Pakistan’s most populous and urbanised province. I used a mix of research methods, including extensive field observations of how the lower level tax staff of the Excise and Taxation Department go about their work. I found three major probable explanations for the very low levels of property tax collections: • Especially after a major decentralisation reform in 2001, responsibilities for collecting the property tax and the revenues it produces are both divided in complex ways between three levels of subnational government. Each level has low incentives to perform its tax collection functions. • Each level of subnational government obtains most of its income either from transfers from higher levels of government or from loans. It generally seems easier for them to increase their incomes by putting more effort into tapping these sources, rather than trying to improve their own tax collection performance. The lack of strong political pressures to increase spending has a reinforcing effect. • It has become administratively difficult for senior policymakers to increase property tax revenue collections through mobilising the organisational resources of the Excise and Taxation Department. Property tax collection has become locked into a system that combines (a) a high degree of informality in routine practices, (b) exclusive control of detailed information about tax collection potential and performance by lower level staff and (c) modest rent-taking and responsiveness to local pressures for leniency in tax collection at these lower levels. When higher-level officials in the Department attempt periodically to enforce the achievement of higher tax collection targets, they are mostly frustrated by these informal working practices and relationships.