The Punjab government has set itself an ambitious task to fully automate its processes related to payments, expenditure, and taxes as well as other receipts to improve financial governance in the province.

The digitization of the public financial processes is expected to bring transparency in budget reparation and execution, mobilize additional revenues for development, better manage expenditure and facilitate taxpayers, according to a new public financial management reforms strategy designed

by the DFID-funded Sub-National Governance (SNG) programme for the provincial government.

The Public financial reform (PFM) strategy 2025 states the digital reforms to be implemented across the government seek to create ‘a non-paper-based and citizen-friendly governance system through the smart use of technology. A fully and easily accessible budgeting, expenditure, accounting and reporting landscape will be established to enable the government to be more efficient through its use of complete, timely and critical information for decision making.’

The underlying objective of the strategy, which consists of nine pillars, is to improve the budget quality, execution and forecasting, both at the provincial and local government levels. Reforms cover broad government processes and are important for Punjab as they will help mobilize greater revenues; improve efficiency and effectiveness of expenditure; modernize and revamp PFM systems; enhance the quality of service delivery; reduce fiduciary risks of the government’s PFM systems.

‘We have seen lenders doling out money for reforms for more than two decades with little outcome. Only time will tell how the new effort is going to be different from the previous ones’

“Automation (of PFM processes) is crucial for transparent and efficient governance, as well as creating fiscal space for ameliorating service delivery in the province,” Faisal Rasheed, PFM advisor at the SNG, told this correspondent.

“The idea is to automate every payment (including Government2Business and Government2Person), government procurements, taxes, payroll, pensions and so on to enhance efficiency in government expenditure and increase its revenues besides creating ease of doing business in the province. This will make every transaction traceable.”

Besides, the strategy document says, the digitization of the government processes will help undertake system-based payroll and pension audits, automate human resource data and integrate it with the financial management data/system, enable timely reporting and support better management of public finances and simplify tax collection by making compliance easier. In the long-term, the strategy suggests establishment of an information technology and data management company under the finance department to provide specialized IT services to the provincial tax departments and agencies.

The Punjab government has for the last several years been moving towards automation. Nevertheless, the pace of movement had awfully been slow at the expense of efficiency in revenue collection and expenditure management. The outbreak of the Coronavirus health crisis has, however, brought the need and importance of automation and digitization of government systems/processes into sharp focus as the government had to lean on technology.

“In addition to automation of public financial management processes, the reform strategy is also focusing on strengthening the capacity of the provincial finance department. A PFM Unit dedicated to reforms is being created at the department to enhance its internal capacity and implement the roadmap,” says Faisal Rasheed.

Reform of revenue collection is another important pillar of the strategy as the province relies on the federal transfers under the National Finance Commission (NFC) award for more than 80 per cent of its general revenue receipts. The remaining income comes from its own resource — tax receipts and non-tax receipts. With little chance of increase in federal transfers going forward, the provincial government direly needs to mobilize its own sources revenues (OSR) as quickly as possible to finance its development and economic growth.

The provincial taxes remain underdeveloped as the total tax revenue collection forms just one per cent of the size of the economy, well below its potential. Besides, the growth rate of the provincial tax collection has fallen to around 10 per cent in the last three years. This implies that there has been little real growth during this period.

Since the government wants to increase tax collection through promotion of economic activity and businesses rather than burdening taxpayers with more and expensive levies, it should reform its tax policy and administration to facilitate the taxpayers and broaden the tax base by bringing untaxed or under-taxed sectors into the net.

In order to create ease of doing business and tap the tax potential without stifling growth and economic activities, the strategy suggests review of all provincial taxes to abolish or merge smaller nuisance taxes to reduce the number of levies , removal of inequity in tax system, create one window tax portal for all businesses for payment of all taxes through, movement towards a sales tax on service regime based on a negative list of services, identification of new taxpayers using data, reduce services sales tax rates for better compliance, and development of the Urban Immovable Property Tax (UIPT) and transfer of its collection to the local governments.

The strategy claims to have a strong political buy-in for the proposed reforms and outlines a result-oriented roadmap for their implementation and monitoring by the donors. But the questions over execution of the reforms remain. “We have seen lenders doling out money for these budget reforms for more than two decades with little outcome. How the new effort is going to be different from the previous ones only time will tell,” wonders an economist who has worked for both the federal government and Punjab since the early 2000s.

Published in Dawn, The Business and Finance Weekly, December 7th, 2020