Pakistan Tax Research Agenda IGC Growth Week Henrik Kleven, Johannes Spinnewijn and Mazhar Waseem London School of Economics September 21, 2011Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 1/8
Research Plan Analyze impact of tax policies and incentives on individuals and …rms how do tax policies in‡uence the tax base: ) capture e¢ ciency cost of tax policy. ) key for determining revenue-maximizing tax policy. other responses: tax evasion, registration/incorporation, spill-over e¤ects. Preliminary results, but research agenda seems promising. unique access to administrative tax data. policy features and changes inducing compelling variation. largely unexplored, also in developed countries.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 2/8
Value-Added Tax Modern broad-based tax, praised for enforcement and administration properties VAT is argued to be self-enforcing. Conjectures have never been tested. Pakistan introduced VAT-type system in 1990. expanded gradually to di¤erent sectors. substantial variation in exemptions, zero-rating and tax rates. Main goals: estimate …rms’responses to VAT (tax base, registration, evasion...). analyze spill-over e¤ect across the VAT chain.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 3/8
Spill-over E¤ects: Gradual Expansion In 1996, VAT was extended to the textile sector. In 2000, VAT was extended to all services & utilities.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 4/8
Tax Base Response: Zero-rating In 2005 reform, 5 major export sectors became zero-rated, including the textile sector. However, ginning was already zero-rated.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 5/8
Corporate Income Tax Similar goals as for VAT, analyze …rms’responses to CIT (tax base, incorporation, ...). Again, underexplored in the literature. Some recent reforms and particular features of the Pakistani system provide the required variation. In Pakistan, corporate income is taxed at a standard rate of 35%. However, (advantageous) minimum tax applies as long as corporate income is below a threshold. small corporations are treated di¤erently, depending on the year of incorporation.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 6/8
Notched Schedule: Minimum Tax If 0.01 turnover > corporate income tax, a minimum-tax applies equal to 0.005 turnover.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 7/8
Cohort-Based Reform: Small Corporations A tax rate of 20% applies for small corporations who incorporated after 2005.Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 8/8
Livestock Related Interventions in Punjabs High Poverty Districts: Design and Evaluation Imran Rasul [UCL] IGC Growth Week 2011 Pakistan Country Session
PEOP• The Punjab Economic Opportunities Programme (PEOP) 2010-15• Worker skills and livestock based interventions• Targets four of the poorest districts in Punjab: Population Poverty Out of which District (Census, ‘98, Headcount Poor (Total) Rural Poor ‘03) Ratio Bahalwalnagar 2,322,116 51.3% 1,249,763 84% Bahawalpur 2,831,590 55.1% 1,577,479 80% Muzaffargarh 2,912,319 51.7% 1,762,535 88% Lodhran 1,172,000 50.4% 627,840 87% Total 9,238,025 - 5,217,617 IGC countries with similar HCR in these years: Bangladesh, Ghana, Kenya
PEOP OrganizationGov. of Punjab DFID Pak Rs £5 million Equivalent of £25 £25 million million Technical PEOP Assistance (£5 million ) Programme Coordination Unit (PCU) * Baseline, RCT (by CERP) £25 million (50% * Advisory £25 million (50% GoPunj & 50% support for skills GoPunj & 50% and L&D DFID) DFID) * Poverty focused Livestock & Dairy Development research for pro Department of Gov of Punjab poor policies and Punjab Skills Development Fund regulations * Capacity building and institutional strengthening for PSDF and L&D - Marginalized farmers and non-farmer women and men - Suppliers of skills, livestock and dairy services and facilities
Agriculture in Pakistan• Sixth most populous country in the world, with annual population growth of 2%• Agriculture constitutes 45% of total employment (72 million individuals)• Yet contributes only 11% of GDP• Within agricultural sector: – livestock related production contributes around 50% of total value of output – 12 million farming households• Interventions targeted towards this sector can have large impacts on welfare and growth: can we asses the potential for growth?
Intervention Target 1: Raising Productivity Potentially large misallocation of resources: better documented for manufacturing sector comparing US to China/India [Hsieh and Klenow 2009], potential TFP gains 30-60%
Raising Incomes and Wellbeing in the Livestock Sector: Individual Based Interventions• Input availability and mix: – livestock breeds • provision of livestock (goats) to households without animal assets • asset transfer: move away from exotic breeds • more controversially, selective culling of low yielding livestock – improved knowledge and techniques related to inputs: • fodder storage, fodder types, tying animals – microfinance (low levels of penetration to date)
Traditional Patterns of Fodder Crops in Irrigated Punjab
Microfinance Penetration• As of June 30, 2011: % of active borrowers, savers and policy holders from livestock and dairy sector by PEOP district: Active Active Savers Districts Borrowers (%) (%) Bahawalpur 27.7 2.3 Bhawalnagar 19.7 2.0 Lodhran 8.9 1.4 Muzaffargarh 0.2 0• Of those with MF accounts, women more likely than men to be active borrowers [PEOP has some targeting focus on women]
Community Based Interventions• Common inputs: vetinerary services • prevalence of bacterial, viral and nutritional diseases that reduce animal productivity • improved diagnostic facilities, timely vaccination • availability of artificial insemination techniques – promotion of cross breeds• Method of delivery: • network of vetinerary centres (raises issues for evaluation) • assignment of trained livestock workers to villages (first stage advertizing intensity)• Community level infrastructure for market linkages: – provision of milk chillers • potential to compare public, NGO and private providers • evaluation: different bundles offered by provider types – collective bargaining of farmers • requires cooperation across wealth classes
Comparison of Cow Breeds Fatter milk commands higher priceProvision of artificial insemination that facilitates production of crossbreeds can help raise productivity
PEOP Baseline Survey• Designed to provide information on – who should be targeted in interventions – design of interventions on demand and supply side – baseline outcomes for RCT evaluation• Types of surveys – separate male and female household surveys – community survey and mapping exercise – employer and training providers surveys – livestock supply side survey• Level of detail achieved by these surveys is far greater than in existing household data sets for Punjab, or the agricultural census for example
Basic Outcomes for RCT Evaluation• Core household survey modules cover: • household demographics • work and skills • household assets and consumption • livestock activities • skills, expectations and aspirations • perception of public and private services, health, time allocations etc. • anthropometrics • [60 page + survey]
Livestock Module Detail• Ownership (including Shirikat – akin to sharecropping but for livestock)• Rearing (trades/purchased)• Input availability, practices and prices (feeding, AI, livestock tying, use of chillers etc.)• Milk production (morning/evening)• Egg production• Income expectations (from milk production, other livestock rearing)• Provides detailed descriptive evidence on livestock productivity, and input related constraints that interventions might loosen
Additional Outcomes for RCT Evaluationi. perception of public and private sector providers (important because both the livestock and skills side are going to roll out the programme through a mix of public and private providers);ii. attitudes towards community and civic life (important for the design of community based interventions)iii. health (anthropometrics) of young children and femalesiv. perceptions about gender equality (targeting women is important for both the skills and livestock interventions)v. self confidence (important as an outcome but also important for targeting)
Sampling of HH and Community Surveys• Sampling split into two phases:• Phase 1 : 6,130 households from 194 PSUs (villages/urban enumeration blocks)• community and household surveys• Phase 2: approx 45,955 households from 667 villages/enumeration blocks• community and household surveys• Within phase 2 we will have 150 “in-depth” surveyed PSUs. In these PSUs we will conduct:• community surveys• short census to all households (average PSU size 350 hhs)• detailed household survey to 200hhs per PSU (slightly longer than surveys in Phase 1)• HH survey will place emphasize on network linkages between households in PSU – 30,000 hhs in in-depth sample [+Phase 1 hhs panel: 2011-13-15] – 15,955 households in remaining 517 Phase 2 PSUs [panel: followed six monthly, short survey instrument]
Immediate TimelineYear Month Activities2011 Sept Start of baseline HH and community surveys (Phase-I) Design of training providers’ survey Oct Completion of baseline HH and community surveys (Phase-I) Start of baseline employers and training provider surveys Nov Analysis of data from Phase-I Start of baseline HH and community surveys (Phase-II; to be completed by Mar-Apr 2012) Completion of baseline employers and training provider surveys Writing of baseline HH report for PSDF and L&DD partners Dec (Phase-I) Intervention design for RCT-based evaluation and re-calibration Jan Writing of baseline Employers and Training Providers’ report
Existing Evidence Base• What priors do we have on the effectiveness of the kinds of individual and community based interventions discussed?• Livestock research team have been involved in the evaluation of another large-scale RCT in livestock sector in Bangladesh• IGC has facilitated knowledge transfer across these settings
Program Interventions• Bangladesh, we evaluated the Ultra-Poor programme, operated by BRAC• Targets poorest 10% of households in rural Bangladesh – recall HCR in Punjab of 50%• RCT evaluation including 25,000 households (2007-9-11), with a small number of in-depth villages• Intervention design: – Asset transfer (unlike in Pakistan, many HHs without livestock at baseline) – Intense two year training period: training provided by BRAC workers – proposed alternative for Pakistan: assignment of trained livestock workers to villages – No interventions related to market linkage in Bangladesh: in Pakistan we want to try and compare different provider types
Lessons Learned 1:Transformation of Occupational Choice
Lessons Learned: Transformation of Occupational Choice
Lessons Learned 2• Increase in annual hours worked• Household income rises significantly• Increase in scale of livestock related activities: either thought land rented/owned, or purchase of animal sheds etc.• PCE increases by 10%, price per calorie rises by 5%• CBA analysis reveals program yields a high RR than equivalent cash transfer• Program replication in 10 countries yielding cautiously optimistic results in short run
Factors To Build into PEOP Design and Evaluation• Heterogeneous effects across HHs depending on the activities they specialized in at baseline – Optimal set of households to be targeted – Interplay with skills interventions• Detailed intervention design: – separating importance of assets, from other input uses/practices, from output prices• Spillover effects onto other poor non-beneficiary households – Changes in occupational structure of other poor households• Do networks matter (in-depth PSUs) and what is the role of the community (identifying the poor, conflict resolution) in making effective interventions?
Organisation of Production andInnovation in Pakistan’s Electrical Fan Sector Theresa Thompson Chaudhry And Christopher Woodruff
The Fan Sector• Nearly all firms located in Gujrat and Gujranwalla (Punjab)• 450 firms – Of which only are 4-6 large scale• Industry output of around 10 million units/year• Exports have more than doubled over last 5 years, to around $40 million - Markets include: Bangladesh and Middle East• Fan quality generally superior to Chinese fans: Metal vs. plastic; New vs. recycled metal
Organisation of production• Production in even the largest firms in Pakistan is organised as batch production rather than assembly lines. – A series of steps, with inventories of semi-finished goods held between each step.• A Coasian factory: A significant role for the ustaad, or foreman. – All work performed at factory, using equipment owned by the firm. – Contracts: • Payment to Ustaad: Payment per piece for packing, winding assembly, painting; contract given to ustaad who puts together teams and pays them. (Determines rate? Hiring / firing?) • Payment to Team Members (based on pre-decided shares): Again piece rate – fixed shares to people on a team. Ex. 15% to ustaad, etc.
In the largest firms:• For each part of the production process, there are two or three teams. – Number of units assigned to team depends on team size (which can vary for same process), experience of ustaad, etc.• Apparent advantages: – Foremen, ustaads, and production workers mostly originate from same village. Foremen use these relationships to try and reduce absenteeism• Question: Does the decentralisation limit managements capacity to provide incentives to workers?
Quality Control• Re-work rates are fairly high in some processes – winding of the motor – painting • Piece-rate quality control workers (firm’s own, not part of production teams) do quality checks (for example voltage) at different points of production process – Teams not paid for defects, but otherwise no penalties
Machinery Breakdown and Rejection issues• Breakdown: – Machinery breaks down excessively – Team of technicians responsible, but also production teams are not informing about poor performance• Rejection: – The motor is susceptible to damage (particularly the copper wire) as it moves from workshop to workshop. – Also, the units are stacked up on top of each other in front of each worker or on the floor, waiting to be moved/worked on. – An assembly line would help with this…
Issues with assembly line• Workers satisfied with piece-rate, like the flexibility of batch – Work for a number of days each month, take off other days to do other jobs – Can take breaks (tea/smoke) during the work day at their leisure – Batch skills are transferable between firms• Would require re-building of factory, which is currently a series of rooms or process specialized “workshops”• Electricity - frequent outages – In batch work, workers can switch to manual processes during outages – In the summer, when outages frequent and long, electricity may be rationed between shops
Changing habits• Thinking about an RCT which would Increase measurement, provide stronger incentives for quality, attendance, etc. – Are just beginning to assemble and analyse the data on quality and production by work group.• We should be optimistic that improvements can be made
Step by step, or a leap?• But…will the incremental improvements be sufficient? – Production lines vs. batch production – Vertical integration vs. standardisation• Will these large transitions be required to remain productive? – If so, green field or brown field?