This document summarizes research on improving property tax policy in Pakistan to support economic growth. Key findings include: 1) Property taxes in Punjab generate only 0.026% of GDP compared to 0.1-0.7% internationally, representing lost revenue of $70-649 million annually. 2) Punjab's property tax system has weak administration, outdated valuations, poor coverage of new areas, and many exemptions resulting in low collection. 3) Interviews and data from one district show property tax and local rates demand is low and flat despite rising property values. 4) The study will analyze policy options to broaden the tax base and compliance through simulation models.

1. Tax Policy Research
to Support a New Framework for
Sustained Economic Growth of Pakistan
Interim Presentation at CGP Conference
by Mr. Daniyal Aziz
February 8th - 10th 2013

2. Research Focus
• Weak Local Property Taxation in Punjab
– Urban Immoveable Property Tax (UIPT)
– Local Rate
• Political Economy and Misgovernance of Local Property Tax
Structure
• Policy Recommendations to Address weaknesses in Property
Tax System
• Development of Methodology for Simulation Analysis of VAT

3. Research Methodology
• Literature Review/Review of Existing Research Studies
• Legal and Procedural Review of UIPT and Local Rate in
Punjab
• Historical Trend Analysis of UIPT and Local Rate in Tehsil
Shakargarh District Narowal
• Key Informant Interviews (KIIs) involving Snow Ball
Technique

4. Significance of Strong Property Tax System
Unleashing the growth potential of cities :
• Improving the quality of urban services
• Implementing property rights and valuation basis of property
important for unleashing the development potential of cities.
Can be used as an instrument of urban policy to promote the
rational use of land to generate social benefits to the
community at large.
• Developing vibrant land markets to promote
Entrepreneurship which is necessary for Pro-poor Growth
• Promoting Agricultural Land Use Efficiency

5. Key Findings-Literature Review
• Existing Studies are mostly focused on UIPT and insignificant
information is available on Local Rate
• Most of them have only investigated Punjab’s UIPT with
respect to its Revenue Potential
• The literature review represents that Property tax has a
significant share despite weak provincial tax revenue efforts
and inability to achieve the revenue targets
• The UIPT and the tax on the transfer of property constitute
the next largest source of revenue for Pakistan.
• Following Statistics (Nabi and Shaikh ,2011)clearly support
these findings.

6. Overall Provincial Revenue Effort is Low
Provincial Tax Revenue Mobilization in Pakistan
Provincial governments raise approx 0.4% of GDP in tax revenues
(4% of national tax collection)
Provincial governments spend about 16 times as much as they collect in taxes

7. Property Tax – Important even as Provincial Tax effort is Poor
Provincial Tax Composition – Punjab (FY 2008-09)

8. Property Tax Should be doing better as seen in..
International Comparison of Property Tax Revenues: Select Countries
(Property Tax % of GDP, FY 2008-09)
Country % of GDP Expected Revenue
FY 2008-09 Increase of Punjab with
(Punjab’s GDP = $ Various Property Tax %
94930 Million) Scenarios of Punjab’s
GDP in Million $)
Punjab Province 0.026
0.026%
Chile 0.7 $ 639.83 million
Ethiopia 0.5 $ 449.97 million Property Tax
Property Tax
$ 165.18 million
Collection in Punjab
Collection in Punjab
Croatia 0.2
$ 70.25 million
is 1/5th of
is 1/5th of
Indonesia 0.1
International Average
International Average
Slovak Republic 0.6 $ 544.9 million
Sri Lanka 0.7 $639.83 million
Thailand 0.3 $ 260.11 million
Hungry 0.3 $ 260.11 million
Poland 1.1 $ 1019.55 million
Argentina 0.9 $ 829.69 million
Mexico 0.3 $ 260.11 million
South Africa 0.7 $ 639.83 million
Canada 4 $ 3772.52 million
$ 2823.22 million
USA 3%
3

9. Expected Revenue if Property Tax % of
GDP Increases?
• As per FY2008-09, Punjab’s GDP was 94,930 Million USD and
Property Tax Collection is around 24.68 Million USD.
• If the Punjab’s Property Tax %age of GDP increases from .
026% to that of Indonesia’s 0.1 %. The Revenue will increase
almost 70.25 Million USD
• Similarly, a revenue boost of 688.19 and 449.97 Million USD
will be registered if Punjab achieves the property tax to GDP
percentage of Chile (0.7%) and Ethiopia (0.5%)respectively .
• In case of achieving 3% property tax to GDP , Punjab can
generate 2847.9 Million USD.

10. Key Findings – Legal and Procedural
Review of UIPT
• The problem of weak property taxation lies in the Tax
Structure and Administration such as;
• Valuation:
– Under Punjab UIPT Act 1958  assessment of all rented or
owner-occupied properties on the basis of actual rent
– Unusual increase in rental market (from 2002 to 2007) but tax
base static for both residential and commercial properties
– Average property in Punjab might be undervalued by 45%
– TMAs, entitled to carry out valuation, have neither capacity nor
expertise to include the built up areas in villages (lal lakir)
– Overall valuation system lacks buoyancy, has inherent inability to
address peculiarities of properties and their rent-ability & unable
to capture rise in capital value of property

11. Key Findings – Legal and Procedural Review of UIPT
• Coverage:
o Cities have expanded over the years whereas the tax base has not 
Failure to notify new rating areas and extension in existing rating
areas
o According to a modest estimate, which is two years old, there are
approximately 73 more rating areas in the Punjab.
o Approx 300k of 750k properties untaxed in Lahore alone.
o Proper assessment and collection with the help of GIS
• Exemptions:
o Low revenue yield and low coverage  results in a reduced tax
o Inefficient use of land (vacant not taxed)
o Estimated revenue loss due  approx 1/3rd of the total collection
o Major source of corruption due to discretionary use

12. Demand/Collection Trends of UIPT in Shakargarh

13. Exemption Trends of UIPT in Shakargarh

14. Key Findings – Legal and Procedural
Review of Local Rate
• The tax is levied on a per acre basis and the tax is levied at a
flat rate of 2 rupees per acre
• Surprisingly, the rate has not been revised in the last many
years
• The rate is set at the provincial level and Local governments do
not have any discretion in setting the rate despite the legal
empowerment under LGO 2001
• This is an important point because if the local government has
no rate-setting power, this levy is effectively an
intergovernmental transfer from the provincial government.

15. Demand/Collection Trends of Local Rates in Shakargarh

17. Demand Statement for Local Rates-Tehsil Shakargarh

18. The Road Map for
Key Informant Interviews (KII) Analysis
• The list of potential respondents in both urban and rural areas
of Tehsil Shakargarh has been prepared
• Preliminary Outline for Key Informant Interviews (KII) has
also been submitted

19. VAT Simulation Methodology
• GINI will conduct simulation analysis of various policy
alternatives to enhance revenue by broad-basing to untaxed
goods/services. Analysis will also involve identification of key
constraints to policy alternatives and recommended actions to
address them.
• In this part of the study a simulation model will be developed
to estimate the VAT base, revenue potential and the extent to
which businesses will comply with the alternative tax options.
• GINI will also assess the possibilty of developing a CGE
(Computable General Equilibrium Model) for policy
evaluation.

20. Thank You