Government of the Punjab - World Bank...2012/04/26 · .4. The composition of the IRRV team is - David Magor, Chief Executive, IRRV, International Consultant (Taxation) Patrick Doherty,

Government of the Punjab

Property Tax Decentralisation Program

Scope Evaluation Report

April 2009

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--------------------------------------------------------------------------------------------------------- Institute of Revenues Rating and Valuation April 2009

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Scope Evaluation Report

SECTION ONE INTRODUCTION .................................................................................................... 5

1.0 BACKGROUND .............................................................................................................................. 5 2.0 DRAFT PROPERTY TAX LEGISLATION ............................................................................................. 5 3.0 PRESSURE FOR INCREASING UIPT ................................................................................................. 7

3.1 Medium Term Policy Framework on UIPT ............................................................................. 7 3.2 Ongoing modernisation programs: ADB, PRMP, UU ............................................................ 8 3.3 Assumptions relied upon in preparing the diagnostic report................................................... 8

SECTION TWO SITUATIONAL ANALYSIS - HUMAN RESOURCES ...................................... 9

1.0 INSTITUTIONAL SETTING ............................................................................................................... 9 2.0 CURRENT OPERATIONAL SETTING OF TAX ADMINISTRATION ........................................................ 9

2.1 Organisation ............................................................................................................................ 9 2.2 Staffing, management and motivation ..................................................................................... 9 2.3 Civil Service career options ................................................................................................... 12 2.4 Motivation .............................................................................................................................. 12 2.5 Corruption ............................................................................................................................. 13

SECTION THREE SITUATIONAL ANALYSIS - GOVERNANCE AND FISCAL ISSUES ...... 14

1. INTERGOVERNMENTAL FISCAL RELATIONS.................................................................................... 14 2. INTERGOVERNMENTAL FISCAL RELATIONS.................................................................................... 16 3. REVENUE EQUALISATION .............................................................................................................. 17 4. ACCOUNTABILITY OF LOCAL GOVERNMENTS ................................................................................ 17

SECTION FOUR SITUATIONAL ANALYSIS - TAX POLICY ISSUES...................................... 18

1. TAX BASE ...................................................................................................................................... 18 2. DEFINING RATING AREAS .............................................................................................................. 21 3. FLAT RATE TAX ............................................................................................................................. 21 4. HIGH LEVEL OF REDUCTIONS AND EXEMPTIONS ............................................................................ 21 5. REFORM DESIGN AND IMPLEMENTATION ....................................................................................... 22 6. POLICY PROCESS ........................................................................................................................... 22

SECTION FIVE SITUATIONAL ANALYSIS - UIPT ADMINISTRATION .............................. 24

1. TAXABLE PROPERTIES ................................................................................................................... 24 2. INCOMPLETE DATABASE ................................................................................................................ 24 3. THE ASSESSMENT PROCESS ........................................................................................................... 24 4. MASS APPRAISAL .......................................................................................................................... 25 5. QUALITY OF RECORDS ................................................................................................................... 26 6. EFFICIENCY OF TAX COLLECTION ................................................................................................. 26 7. LOW COLLECTION LEVELS ............................................................................................................. 27 8. CUSTOMER SERVICE ...................................................................................................................... 27 9. PERFORMANCE MANAGEMENT AND QUALITY CONTROL .............................................................. 28

SECTION SIX SITUATIONAL ANALYSIS - INFORMATION TECHNOLOGY .................... 30

1. ETAC SYSTEM .............................................................................................................................. 30 1.1 History of the ETAC project initiation ................................................................................... 30 1.2 Overview of the ETAC System ............................................................................................... 30 1.3 ETAC System Usage .............................................................................................................. 31 1.4 Comment on the ETAC Project .............................................................................................. 31 1.5 Issues ..................................................................................................................................... 31 1.6 Fit for Purpose Comment ...................................................................................................... 31

2. GIS SYSTEM .................................................................................................................................. 32 2.1 Approach ............................................................................................................................... 32 2.2 Costs ...................................................................................................................................... 33 2.3 Current Situation ................................................................................................................... 33 2.4 Links to the ETAC System ...................................................................................................... 34

3. INFRASTRUCTURE ......................................................................................................................... 34 3.1 Electricity Supply ................................................................................................................... 34


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3.2 Communications .................................................................................................................... 35 3.3 Personal Computers .............................................................................................................. 35 3.4 Local Area Network ............................................................................................................... 36 3.5 Software ................................................................................................................................. 36 3.6 Email...................................................................................................................................... 36 3.7 Security .................................................................................................................................. 36

4. SUPPORT MECHANISMS ................................................................................................................. 36 4.1 Intranet .................................................................................................................................. 36 4.2 Training ................................................................................................................................. 36 4.3 Technical Support .................................................................................................................. 36 4.4 Data Protection ..................................................................................................................... 37 4.5 Acceptable Use Policies ........................................................................................................ 37 4.6 Data Entry ............................................................................................................................. 37

SECTION SEVEN MAJOR GAPS AND CHANGE ISSUES ........................................................... 38

1 INTRODUCTION .............................................................................................................................. 38 2 HUMAN RESOURCES (SECTION 2) .................................................................................................. 38

2.1 Dual subordination ................................................................................................................ 38 2.2 Functional organization of the E&T Department .................................................................. 38 2.3 Lack of specialised, trained staff and training programmes.................................................. 38 2.4 No performance based staff motivation measures ................................................................. 39 2.5 Risk of corruption .................................................................................................................. 39 2.6 No change management ......................................................................................................... 39

3. GOVERNANCE AND FISCAL ISSUES (SECTION 3) ............................................................................ 39 3.1 Lack of incentives .................................................................................................................. 39 3.2 Lack of revenue equalisation ................................................................................................. 39 3.3 Lack of accountability of local governments ......................................................................... 39

4. TAX POLICY ISSUES (SECTION 4) .................................................................................................. 40 4.1 Policy process ........................................................................................................................ 40 4.2 Flat tax rate ........................................................................................................................... 40

5. UIPT ADMINISTRATION (SECTION 5) ............................................................................................ 40 5.1 Lack of a comprehensive tax base ......................................................................................... 40 5.2 Lack of revaluation ................................................................................................................ 40 5.3 Valuation tables do not reflect market value ......................................................................... 40 5.4 Lack of quality in the records ................................................................................................ 41 5.5 Lack of efficiency in tax collection ........................................................................................ 41 5.6 Low levels of enforcement ..................................................................................................... 41 5.7 Lack of procedure manuals ................................................................................................... 41 5.8 Lack of internal check ............................................................................................................ 41 5.9 Lack of customer service ethos .............................................................................................. 41 5.10 Lack of interaction with stakeholders .................................................................................. 41 5.11 Lack of performance management and quality control ....................................................... 41

6. INFORMATION TECHNOLOGY (SECTION 6) .................................................................................... 42 6.1 Automated Manual Process ................................................................................................... 42 6.2 Lack of Automated Collection Process .................................................................................. 42 6.3 Lack of comprehensive auditing function .............................................................................. 42 6.4 Lack of built-in help system/training mode ............................................................................ 42 6.5 Lack of user defined reports/MIS Facilities ........................................................................... 42 6.6 Lack of data validation .......................................................................................................... 42 6.7 GIS Imagery is more than two years old ............................................................................... 42 6.8 GIS information is two dimensional ...................................................................................... 43 6.9 Inconsistencies between the GIS and ETAC Systems............................................................. 43 6.10 Lack of Infrastructure in the district offices ........................................................................ 43 6.11 Lack of capacity planning .................................................................................................... 43 6.12 Additional Software Requirements ...................................................................................... 43 6.13 Centralised Email System .................................................................................................... 43 6.14 Project Documentation is Out of Date ................................................................................ 43 6.15 Lack of an overall Programme Manager............................................................................. 43 6.16 Lack of a department-wide Intranet ..................................................................................... 44 6.17 Lack of targeted policies ...................................................................................................... 44 6.18 Lack of data protection principles ....................................................................................... 44 6.19 Regular systems review........................................................................................................ 44


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6.20 Lack of ongoing support contract with the developers ........................................................ 44 6.21 Lack of IT orientated training programmes ......................................................................... 45

ANNEX 1: ORGANISATIONAL CHART OF EXCISE AND TAXATION DEPARTMENT ... 46

ANNEX 2 REFERENCES ................................................................................................................. 47

ANNEX 3 ACRONYMS / ABBREVIATIONS USED IN THE REPORT .................................... 49


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Section One Introduction

1.0 Background

.1. Property taxation has a long tradition in Pakistan but the Urban Immovable Property Tax (UIPT) provides for only a small amount of revenues because of unclear local government fiscal incentives, an unreliable information base, a low level of motivation, expertise, and insufficient capacity in the UIPT administration. However, the Government of Punjab (GoPunjab) is committed to a fundamental restructuring of the UIPT system.

.2. Following a number of World Bank reports a new Punjab Immovable Property Tax Law (PIPT) was drafted in May 2008 and the Bank appointed the Institute of Revenues Rating and Valuation (IRRV) to assess the needs and resources required for, and designing of, a blue print for structural reform and implementation of a property tax decentralization program.

.3. The Terms of Reference require that the Institute shall approach the Punjab property tax system from a broad perspective and take into account the present legal, regulatory, institutional framework, present practices, capacities, circumstances; but build the foundation of the new system in line with the substantial policy reforms contained in the key policy documents adopted by the GoPunjab in 2007-2008.

.4. The composition of the IRRV team is -

David Magor, Chief Executive, IRRV, International Consultant (Taxation)

Patrick Doherty, Council Member, IRRV, International Consultant (Taxation)

Gabor Peteri, LGI Development Ltd. Institutional Development Expert

Mark Doherty, International Expert (Information Technology)

.5. This report was prepared after the field mission1 in February – March 2009 and it follows the inception report. It deals with the scope evaluation and gap analysis requirements of the Terms of Reference.

2.0 Draft property tax legislation

2.1 With financial support from the Poverty Reduction Support Credit (PRSC) Trust Fund, the World Bank hired a short term consultant in May 2008 to work with a team of officials from Provincial Government to undertake a review of the Punjab Immoveable Property Tax Act 1958, the purpose being to draft a new law that: -

(i) Was in harmony with the current legislative framework,

1 The mission team planned to spend three weeks in Lahore, but had to leave Lahore a week earlier

following the advice of the UN security advisor. The shortened time had constrained our diagnostic

work; we have mitigated this by follow up email communication with Punjab counterparts. Issues left

unanswered will be addressed during the next field work while preparing the blueprint of a new system


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(ii) Was in harmony with the present policies as expressed in the Medium-Term Policy Framework of the Government of Punjab on the Urban Immovable Property Tax;

(iii) Assists in broadening the tax base, improving income collection and improving the administration of the property tax; and

(iv) Was in accord with international standards.

2.2 Salient features of the draft law

The law that was drafted was the result of the work of the team following discussion with many of the stakeholders from the Provincial Government. The principal features of the draft law are:

Redefinition of -

(i) Rating area in accordance with the PLGO, the impact of which is to make all properties in the Punjab subject to the immovable property tax;

(ii) Immoveable property;

(iii) The liable person.

Indexation and elasticity of tax rates;

Assigning the tax rate setting to the TMA, as levying authority:

Valuation issues --

(i) Propose a three year valuation list;

(ii) The creation of a valuation table for each rating area.

Review of exemptions including -

(i) The removal of the 5 marla land, Provincial Government, government officials, widows, orphans, disabled persons exemptions;

(ii) The introduction of an exemption for agricultural land.

(iii) The exemption for widows, orphans and disabled persons has been replaced with a new scheme based on income / hardship / family circumstances and which will target relief to all the needy regardless of age, sex, religion and nationality and shall take account of those persons suffering from financial hardship or long term family circumstances or illness that impacts on the resources of the family.The scheme will positively target help to those in most need (including widows, disabled persons or minor orphans) rather than as now indiscriminately provide assistance to all irrespective of circumstances;

(iv) Relief scheme for commercial and industrial taxpayers suffering hardship.

(v) Taxation of vacant land (with the exception of agricultural land);

Administrative changes including: -

(i) the introduction of an assessing authority, a billing authority and a levying authority;


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(ii) tax setting rules to encourage the TMA’s to set a tax in accordance with their budgetary requirements by ensuring that those who do not set a tax receive grant proportionate to the tax that is set on their behalf;

(iii) the payment of monies collected on a monthly basis to TMA’s (less a share of the cost of collection);

(iv) a review of law on the issue of demand notices, payments and the methods of enforcement, including -

Allowing for specific payment dates;

Payment by instalments;

Payment by electronic methods;

Incorporating the law on distress and committal to prison in the draft law;

Introduction of attachment of earnings and a lien on property. (

Requirements to provide information by private persons / public bodies.

In addition, much of the wording in the former UIPT Act has been amended to ensure that the intention of the legislation is in a more modern language and that the intention of the legislation is clear.

3.0 Pressure for increasing UIPT

3.1 Medium Term Policy Framework on UIPT

Government of Pakistan is under considerable fiscal pressure, as the budget deficit has constantly increased since 2003 in a period of declining economic growth (World Bank, 2008). Enhanced public spending – presently 14% of GDP, (without interest and defence) - can be financed only by higher public revenues.

This led to the formulation of a medium-term policy framework of the Government of Punjab on the Urban Immovable Property Tax (UIPT). Its main goals are to extend the coverage of the UIPT, (as of today some 30 Town Municipal Administrations (TMA) do not collect UIPT) and to increase the receipts of property tax in the local budgets.

There are three ways to achieve these objectives: (i) firstly, through improved incentives in the intergovernmental fiscal system, (ii) secondly, by expanding the tax base (iii) thirdly by making the tax administration more effective, The Excise and Taxation Department being responsible for the UIPT administration faces the problems of

(a) Insufficient staff capacity;

(b) Low motivation, due to the general civil service rules; and

(c) Mixed responsibilities and functions in tax policy design and tax administration under the dual subordination system.


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3.2 Ongoing modernisation programs: ADB, PRMP, UU

There have been a number of initiatives undertaken by the Urban Unit (UU) and the Punjab Resource Management Program (PRMP) and funded by the World Bank (WB) and the Asian Development Bank (ADB) to improve the property tax position.

The UU and WB has concentrated largely on the development of a new and modern property tax whilst the PRMP and the ADB, has initiated the second phase of reforms under Punjab Government Efficiency Improvement Program [PGEIP].2

PGEIP is the continuation of Punjab Resource Management Program and is a policy and governance reforms program that seeks to improve Institutional development, public financial management and private sector development.

One component of the Punjab Government Efficiency Improvement Program is aimed at improving fiscal and financial management practices, taxation policy & administration in the Finance Department, Excise & Taxation Department and Planning & Development Department by strengthening:

(a) Reliability of fiscal projections;

(b) Preparation, execution, and monitoring of the budget process;

(c) Coordination between the recurrent and development sides of the budget;

(d) Increasing the resource base by improving policy and tax administration.

Improving own source revenue through improving tax policy and tax administration in the province. is one of the core objectives of Punjab Government.

3.3 Assumptions relied upon in preparing the diagnostic report

In developing the scope evaluation report, the blue print and the action plan for reform the following assumptions are made; -

(a) The tax base will be widened to incorporate those areas that are currently not taxed will be declared as rating areas within the existing legislation; further, the tax base will be largely broadened by implementing the proposals of the draft PIPT legislation;

(b) That sustainable improvement of the human and organizational capacities of tax administration is achieved. (requires structural changes in the fiscal environment, primarily by setting incentives in the intergovernmental relations);

(c) The E&T Department will cooperate fully in the project and access will be given to all necessary information in the formats requested and in a timely manner and can be assumed to be accurate and reliable.

2 Punjab Resource Management Program - www.punjab-prmp.gov.pk


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Section Two Situational Analysis - Human Resources

1.0 Institutional Setting

Effectiveness and efficiency of the tax administration is very much defined by the institutional environment, the governance methods and the intergovernmental fiscal relations. These structural conditions are reflected by the lack of real ownership of UIPT, as it is a shared tax, with a very low provincial ratio (5%), while in reality the provincial government is responsible for the tax collection.

The E&T Department has staff in the field offices that are on the payroll of the District Governments, despite the fact that they draw their logistical and management support from the provincial Government of Punjab.

At sub-provincial level the fiscal incentives for increasing UIPT revenues are missing and there is a lack of accountability at local governments, as there are no real linkages between District/TMA expenditures and the UIPT revenues.

The main focus of the property tax decentralisation is on the improvement of UIPT administration. However, no administrative changes will be successful and long lasting without structural changes in the fiscal environment. So this is why the institutional environment and the governance issues are important. We believe that proper incentives set by the intergovernmental relations will lead to improvements in the present human and organizational capabilities

2.0 Current Operational Setting of tax administration

2.1 Organisation

The E&T Department has a complex and dispersed structure throughout the Punjab. It is responsible for the collection of several indirect and direct taxes and fees, like excise fee, cotton fee, professional tax, motor vehicle tax, motor vehicle related fees and the UIPT.

At the E&T Departmental level the technical issues are organised in three units:

(a) excises, including the motor vehicle tax and registration;

(b) taxes and fees; and

(c) statistical data collection.

The internal units of the Directorate General (DG) are:

(a) the inspectorate with an information bureau;

(b) enforcement and audit; system analyst (IT);

(c) the opium factory inspectorate, and

(d) the headquarter administration and office management.

The territorial units of the DG comprise nine divisions, covering 23 districts and in Lahore 12 zone offices. Within these units there are approximately 350 tax circles. Assessment and collection of the property tax is operated at the Provincial level in terms of the management control, but formally the District level governments are responsible for the organisation and management.

2.2 Staffing, management and motivation

The total number of public employees working in tax administration is small in relation to the workload. There are 3,184 civil servants (appropriated staff


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positions) of which only some 8% are on the payroll of the provincial government, i.e. directly employed by the DG. (Table 1.)

1. Table: Public employees in tax administration by pay scale

Pay scale Punjab provincial

government Local

governments Total

Punjab E&T DG

E&T Districts

E&T Total

BS-1-4 86 830 169 837 256 667 38 118 156

BS-5-15 229 718 367 065 596 783 195 2571 2 766

BS-16 13 005 40 192 53 197 14 166 180

BS-17-22 31 986 30 222 62 208 12 70 82

Unspecified 633 54 496 55 129 0

Total 362 172 661 812 1 023 984 259 2 925 3 184

Source: Punjab Development Statistics, 2008; E&T Department

The E&T Department is responsible for the administration of several different types of taxes. Among these the UIPT is a less important one (3%3) of total provincial receipts, (see Table 6 below), whilst motor vehicle tax and registration fees are the largest revenue sources creating approximately 40% of provincial tax and non-tax revenues. The E&T Department’s primary tasks are connected to motor vehicles: registration, issuance of certificates, collection of fees and various taxes (e.g. capital value tax, PIT together with motor vehicle tax).

At the DG headquarters the tax administration focuses on motor vehicle related taxes and fees. So the UIPT related staff is only 10 employees, which is 5% of the actually employed 238 staff at Directorate General and 6% of the DG labour costs. (Table 2.)

2. Table: Staff number and employee related expenses at DG, 2008/09

Units (by grant codes) Number of staff Employee related expenses (AO1)

Directorate 31% 34%

Excise Bureau 6% 7%

Motor vehicle related taxes, charges

55% 50%

Cotton fee 3% 3%

UIPT 5% 6%

Total 100% 100%

Source: E&T Department

The organisation of the E&T Department is based on a territorial-hierarchical structure with mixed tax collection and enforcement functions (see organogram at Annex 1.) Comparing the employment structure of all government tiers in Punjab with the E&T Department by the basic pay scale, the tax administration is dominated by the civil servants in BS-5-15 (58% in Punjab, 87% of E&T staff). The tax administration staff in all pay scale categories mostly works at District Offices (92% of the total employees, while in Punjab only 65%). (Table 3.)

3 GoPunjab, Finance Dept., Punjab Development Statistics, 2008, Bureau of Statistics, Lahore


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3. Table: Composition of administrative staff by pay scale

Pay scale Punjab total E&T Total Out of this: working at sub-provincial level

Punjab E&T Total

BS-1-4 25,1% 4,9% 66,2% 75,6%

BS-5-15 58,3% 86,9% 61,5% 93,0%

BS-16 5,2% 5,7% 75,6% 92,2%

BS-17-22 6,1% 2,6% 48,6% 85,4%

Unspecified 5,4% 0,0% 98,9%

Total 100,0% 100,0% 64,6% 91,9%

Source: Punjab Development Statistics, 2008; E&T Department

In fiscal year 2008/09 the appropriated staff positions at E&T Department headquarters and the local offices together were 3,182 (Table 4.). Two-thirds of the employees are experts, working as assessors, inspectors and local tax administrators (clerks). The remainder are support staff, such as drivers (70), caretakers (52), sweepers (43), and other logistical roles:

4. Table: Staff positions at E&T Department, 2009

Staff Appropriated staff positions

Director General, Additional DG 2

E&T Directors 11

Excise and Taxation Officers 60

Assistant ETO (assessors) 161

E&T Inspectors 719

E&T Clerk/Constable 1,021

Subtotal technical staff 1,974

Additional technical staff, above BS-11: 189

Additional staff, BS-11 and below 1,019

Total 3,182

At the DG Headquarters out of the 259 positions there are 90 data entry operators, 19 junior clerks, 18 constables and 16 drivers. There is no specific information on the UIPT related employment at District Offices. But at the field offices the E&T constables and E&T Inspectors are employed in the largest number. According to the E&T District Office Director’s estimates almost half of the staff time is spent on UIPT related matters. This workload seems to be extremely high, especially if it is compared with the share of UIPT in provincial budget.

Both the DG provincial and the District level staff are employed under the general civil service regulations. They are rigid, seniority-based rules, preventing flexible operation and financial motivation of the staff. Contractual positions are possible and E&T Department uses contracted employees for specific tasks, like data entry and programming.

There are no special entry examinations for the newly employed staff. Salary of an E&T Inspector can be increased only if his position is changed, that is promoted to an E&T Officer. The Provincial level determines all the recruitment and staff transfer, salaries and promotion schemes. These rules do not support functional specialisation and establishment of effective management practices.


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For example, the ratio of new employees and the minimum and maximum age limits of these new entrants in public service are set by government regulations.

Despite the centrally controlled employment rules, the actual workload in tax administration is quite dispersed (Table 5.). The rating areas defined by E&T Department on the average cover 23 thousand properties, but obviously there are large differences between urban and rural districts. The staff positions in the field by rating areas is 24 and typically one District is divided in to 2-4 rating areas.

The number of staff by zones in Lahore is the highest, but in this large city the Region A. and Region B. are organised in a different way. The actual workload measured by the property units by employed staff is 1,155 units per capita. Assuming, that professional staff is approximately half of the total number of employees, the estimated number of properties controlled by one technical member of staff is app. 2,500.

5. Table: Workload in tax administration

Standard deviation in

percentage of the average

Minimum Maximum

Property units by rating areas (N=109)

23,537 81% Nankana Sahib:

6,995

Faisalabad:

83,632

Appropriated staff positions by rating area

24 90% Gujrat: 5

Lahore city: 100

Property by number of employed

1,155 77% Bhakkar:

446

Gujrat:

5,036

2.3 Civil Service career options

All the factors set out in 3.2 above result in limited career options within the E&T Department and a very high staff turnover. According to the civil service regulations only 30% of the field staff can be promoted internally, the majority should be newly appointed through a competitive process, managed by the Provincial Management Service under the Public Service Commission. This leads to a long waiting time for the staff, so approximately half of the new employees leave within a year to other units of the public sector. Despite this fact, the public sector employment still attracts new entrants where the entry requirement is at Bachelor or Masters level, which also qualifies them for federal government positions.

2.4 Motivation

Formally, the Districts determine the salaries and the establishments in the field offices / TMA’s, but the actual number of positions is sanctioned by the Finance Department. The interpretation of the general civil service rules at E&T Department does not allow any refinement of the pay scale or the introduction of performance based promotion. The E&T Department chairs the Promotional Management Committee for the higher positions, at pay scales BS-16-18.

The civil service employment rules do not encourage a positive approach to staff motivation, only negative tools are available, such as relocation or


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dismissal of the staff. In this hierarchical, seniority based civil service system the opportunities for introducing performance related pay and promotion opportunities are limited. It would require specific job descriptions and then objective, independent staff appraisal and evaluation based on accurate management information system to change the approach. In order to avoid political or other favouritism the management responsibilities should be delegated to a lower level. But devolution of power is missing from the civil service and management culture.

2.5 Corruption

The risk of structural, large-scale corruption is due to the absence of accountability at the local government level. Districts and TMA’s have little interest in defining the property tax base properly, because it is a shared revenue. They do not have effective local control over the incoming revenues and the size of UIPT is low. These appear to be the main reasons for not incorporating new subdivisions and rural suburbs in the urban areas.

Beyond these significant losses there is a risk of petty corruption, as well. It might occur during individual assessments of the various types of owned or rented properties and the tax collection. Records on the basis of property tax are not available locally for the general public. The staff assigned to audit within the E&T Department has limited capacities and unclear job descriptions.

In general a non-merit based system of public employment creates a culture of dependency and increases the possibility of corruption. In addition, there is no evidence of internal check and separation of duties in the way in which work is organized e.g. the UIPT inspectors provide the information about the assessment of properties, they undertake billing and they enforce and collect the sums due.

Good accounting practice dictates that these responsibilities should not be undertaken by one person in order to reduce the possibility of fraud and mis-appropriation taking place.


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Section Three Situational Analysis - Governance and Fiscal Issues

1. Intergovernmental fiscal relations

Public revenues of the Punjab provincial government are relatively low, only 0.6% of Pakistan GDP. There is no comprehensive information on sub-provincial public spending, but the available sample of city budgets shows, that local budgets – including development agencies, water and sanitation authorities - are of similar size. There is no disaggregated data on GDP by province, but using a simple population based apportionment; public spending is 2-3% of provincial GDP. This is a relatively low share in comparison with international practice..

UIPT is reported among the Punjab provincial government revenues: during the past two years it was 3%-5% of own source provincial revenues. The actual UIPT is always lower than the budget appropriation; in 2007/08 collection was only one third of the planned amount. (Table 6.)

This is due in part to poor collection but also due to unrealistic estimates of income collection being made for the purposes of the provincial budget.

6. Table: Punjab provincial revenues

PKR Thousand FY 2006/07 FY 2007/08

Budget Actual Budget Actual

1. Tax receipts, total 30,343, 117 23,954,422 37,315,597 23,503,399

Of this:

Urban Immovable Property Tax

2,489,000 2,257,748 3,422,000 1,085,989

Shared UIPT -2,489,075 -1,220,986

Shared tax on luxury homes -39,308 0

2. Non-tax receipts 22,512,192 20,432,116 25,402,529 10,479,019

Total tax and non-tax available 52,855,309 44,386,538 62,718,126 33,982,418

3. Miscellaneous 4,996,616 11,193,745 7,774,844 598,342

4. Extraordinary receipts 7,648,630 722,625 9,073,250 724,325

5. Interest, other misc.*/ 9,399,844 26,606,888

Grant total 65,500,555 56,302,908 88,966,064 61,911,973

Pakistan GDP**/

8,723,215,000 10,478,194,000

Punjab total in % of GDP 0,6% 0,6%

* Interest on investment of GP Fund, Conversion of PLAs to SDAs; **/Punjab Development Statistics, 2008 - Source: GoPunjab, Finance Dept., Punjab Development Statistics, 2008, Bureau of Statistics, Lahore

The UIPT is shared with the sub-provincial governments. According to the tax legislation 5% of the collected UIPT revenue remains at provincial level as a collection charge, while the rest is reallocated to various local units. The shares of District/TMA, the Water and Sanitation Authority (WASA) and the Development Authorities are changing. WASA has the largest share (approximately. half of the shared UIPT), the local governments and the


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development agencies have equal shares4. Tax sharing is based on population numbers. In a sample of four large cities the UIPT was 5%-8% of local own source revenues of the local budgets. Among the WASA non-development revenues UIPT is more significant, last year it was half of the actual current revenues. (Table 7.)

7. Table: UIPT in local revenues

WASA City District Governments*/

UIPT in % of non-development revenues

UIPT in % of own source revenues

2005/06 actual 21,5% 0,2%

2006/07 actual 14,5% 7,7%

2007/08 actual 49,9% 7,4%**/

2008/09 budget 16,5% 5,2%

*/ without Rawalpindi; **/revised budget Source: Lahore, Rawalpindi, Faisalabad, Multan city local budgets, collected by the World Bank

There is a local perception of UIPT that it is generally regarded as a fee for urban services. So it might be the reason why WASA receive a relatively high share of UIPT revenues. It also partially explains that lack of communal and utility services in the rural areas of the Districts and in the TMA’s, where the urban property tax is not levied.

According to the legislation the UIPT is shared with local governments on a monthly basis. However, the actual transfer of UIPT revenues to TMA's is rather irregular and it is not connected to the collection of tax revenues (Table 8 overleaf)

Collection is higher in the first months of the fiscal year; the transfers are made usually at the end of the fiscal year, in the period of February-June.

4 No specific information was available and after deducting the 5% provincial collection charge, the

remaining sub-provincial share did not add up to 100%. Bahl, et al (2008) report, that the Provincial

government took an additional 15% UIPT beyond the 5% collection charge, share of WASA was

58%and TMAs received 22%


16

8. Table: UIPT collection and sharing

UIPT revenues collected and transferred, 2007/08

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

July August September October November December January February March April May June

PK

R 1

,000

Monthly UIPT revenues Monthly UIPT transfers to TMAs

In accordance with the Punjab UIPT Act, Section 3-B. local governments are authorised to set the UIPT rate between 10%-20% of the annual rental value. In practice all local governments levy the UIPT at the maximum rate. When the gross annual rental value is above PKR 20,000, then the rate is higher; it is automatically increased to 25%. (Section 9., Punjab Finance Act, 1972)

There is no specific UIPT revenue equalization mechanism in the intergovernmental transfer system. So despite the fact, that affordability is the major concern in tax policy design, the local government level equalisation does not appear to work. At the individual taxpayer level there are the various types of exemptions, reliefs and their number is increasing.

2. Intergovernmental fiscal relations

The intergovernmental transfer system does not provide sufficient incentives at sub-provincial level for increasing UIPT revenues. The District and TMA level do not benefit from UIPT, as it is a relatively low element among local own source revenues and, therefore, the grant dependency is high.

The revenue sharing mechanisms are not favourable for the local governments, as they do not take into account the property tax raising capacity. Most of the reallocated UIPT goes to WASA. The annual ratios of UIPT sharing are not predictable and the actual collection levels are rather volatile.

The E&T Department as a provincial entity is not interested in increasing the UIPT collection, because it is local budget revenue. The relationship between the revenue sharing and the transfers allocated by the Provincial Finance Commission (PFC) is not regulated. It is not clear how the size of the PFC grant is connected to the amount of the shared UIPT revenues.

The indicators of the PFC transfers from the Provincial Allocable Amount (PAA) do not take into account the local revenue raising capacity. They are based on


17

the population and the index of deprivation. The majority of these provincial transfers are used for financing personnel costs, while salaries are set by the federal regulations.

3. Revenue equalisation

Differences in UIPT revenue are negated by the tax sharing mechanism. The factors in the index of deprivation are not known and the population based revenue sharing scheme does not take into account differences in revenue raising efforts. Consequently the poorer local governments are not compensated for the low revenue base and the wealthier local governments are not interested in raising UIPT.

4. Accountability of local governments

The population based tax sharing mechanism and the unpredictable allocation between sub-provincial entities makes the local governments non-accountable. There are no linkages between the services provided, service performance, UIPT policy decisions and the tax collection performance.


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Section Four Situational Analysis - Tax Policy Issues

1. Tax base

Only limited information is available on the actual UIPT tax base and the revenue yields at different local governments, Districts and TMA level. The tax base – measured by the number of property units - is dominated by residential property (Table 9.). 72% of total property is residential and most of the properties are not taxable (61%). The burden on tax administration is probably high, as 30% of all properties are rented, which makes the collection more complicated.

9. Table: Property units, Punjab*/

, 2006

Total property

Taxable property

Non-taxable property

Commercial property

Residential property

Commercial property

28% 60% 8% n.a. n.a.

Residential property

72% 40% 92% n.a. n.a.

Total 100% 100% 100% n.a. n.a.

Taxable property

39% n.a. n.a. 83% 22%

Non-taxable property

61% n.a. n.a. 17% 78%

Total 100% n.a. n.a. 100% 100%

Rented property

30% 48% 19% 56% 19%

Owner occupied

70% 52% 81% 44% 81%

Total 100% 100% 100% 100% 100%

*/ Without Rawalpindi, Attock, Jhelum, Chakwal

Source: Urban Unit

The majority of tax revenues originate from businesses, although taxes in Lahore are equally allocated between commercial and residential properties (Table 10.). As most of the exemptions are granted to residential owners, the majority of non-taxed properties are mostly owner occupied residential units. The majority of commercial properties are taxed (83%), irrespective of whether they are owner-occupied or rented.


19

10. Table: UIPT and property units by type of property (Lahore)

UIPT levied and property units in Lahore

50

32

50

68

0

20

40

60

80

100

120

UIPT levy Property unit

%

Commercial Residential

Consequently E & T Department has to deal with a large number of residential property units, which increases the tax administration costs. However, the majority of tax revenues originate from businesses, so focusing on commercial properties would increase the efficiency of UIPT administration.

Information on UIPT levies by classes of property was available for us only for Lahore. Here only five categories are used (Class A to Class E). Commercial property is more or less equally allocated in these classes (except in Class A., where only 12% of units can be found). But most of the UIPT levies are in the first two groups: 59% of UIPT on commercial entities comes from the property classified as category A. and B.

Residential property is taxed in lower classes: most typically in Class D., (34% of residential property). The one-fifth of residential properties in the upper classes (A and B.) produce 56% of the UIPT levies. So increasing the effectiveness of tax collection for these residential properties in the higher property classes would increase the actual UIPT revenues.


20

11. Table: UIPT and property units by classes of property (Lahore)

UIPT levies and property units, Lahore

30,2%

28,5%

17,0%

11,7%12,6%

26,9%27,6%

17,7%16,9%

10,9%12,3%

22,1%

19,3% 19,7%

26,6%

6,1%

14,2%

22,2%

34,3%

23,2%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

A B C D E

class

Commercial UIPT levy Residential UIPT levy Commercial property units Residential property units

As can be seen from Table 12 - in the top category (Class A) the average UIPT levy is ten thousand Rupees, collected from approximately twenty thousand property units in Lahore. Interestingly the average UIPT levy in the lower categories is quite similar, in the case of residential properties around two thousand Rupees. This shows the intention to make the of the property tax system less regressive.

The commercial levies are always higher than the residential ones, but the difference is not significant – despite the four fold higher ARV in the valuation tables.

12. Table: Property units and UIPT levies by classes of property (Lahore)

Property units and average UIPT levies

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

A B C D E

class

0

2 000

4 000

6 000

8 000

10 000

12 000

Commercial property units Residential property units Average UIPT, commercial Average UIPT, residential

The valuation tables in 2001 produced highly discounted values for the three types of properties. Re-assessment of the annual rental value was delayed,


21

despite the legal obligation to issue new valuation lists every three years (Section 7. (a) of the Act on UIPT, 1958). The rent control over residential property and the limited rent increase for commercial property also limits and erodes the tax base. (World Bank 2006).5

2. Defining rating areas

Local governments are authorised to define the rating areas in the urban areas, set by the Government of Punjab6. Because of a lack of local fiscal incentives and because of the general perception that UIPT pays for urban services, local governments are reluctant to extend the tax base. The rural areas used for new developments and in reality urban are not classified as urban areas and therefore not liable. For the same reasons local governments do not designate rating areas in the present urban areas. Vacant land is not included in the tax base.

However, the amendment of the Act on UIPT in 1976, the Urban Immovable Property (Validation of Tax) Act (Pb Act. XX of 1976) clearly defined, that rating areas might be created and they should be automatically considered as urban areas. So in local governments rejecting to declare urban areas the E&T Department still might be able to extend the UIPT collection to the newly urbanised sectors7.

3. Flat rate tax

The UIPT is a regressive tax, because the typical rate, 25% is applied to most properties. The annual rental value limit for the 25% rate is rather low – or properties are highly undervalued. Assuming a 5% discount rate, at the PKR 20,000 levy limit the property capital value is PKR 400,000 (20,000/0.05)8. So the tax rate above this low threshold is the same for all the property owners, even though their incomes would differ quite significantly.

4. High level of reductions and exemptions

There are a large number of reductions, reliefs and exemptions in the UITP system. They are targeted to take account of social policy considerations and to make the tax burden more progressive however in reality this is not the case.

However, there are other often-criticised reductions and exemptions, which actually favour the rich, e.g. the declining UIPT rate for larger industrial units or the 5 Marla exemption for all types of residential property.

The costs of these tax reliefs and exemptions cannot be measured, but according to an estimate it is approximately 130% of the UIPT levies (World Bank, 2008). So there is significant revenue potential in the present property tax system.

5 World Bank 2008 p119

6 The Punjab UIPT Act, 1958: “3. Levy of tax.– (1) Government may by notification specify urban areas where tax shall

be levied under this Act”. But there is no provision in this Act on the demarcation of rating areas.

7 Punjab Urban Immovable Property (Validation of Tax) Act, 1976. (Pb Act XX of 1976), Section 2. : “…the rating areas

under the provisions of the 1940 Act, shall be deemed to include and always to have included such extended areas within the limits of a local authority which before such extensions could not have been considered as a part of rating areas under the 1940 Act, and the rating areas so reckoned shall be deemed to be and always to have been deemed as urban areas for the purposes of sub-section (1) of section 3 of the 1958 Act,…” 8 app. EUR 4,000


22

Whilst there was criticism of the exemptions in the current legislation little has been done over the years, in spite of proposal being made within the Government. It is noted, however, that the draft legislation replaces many of the reliefs and exemptions with an income based relief scheme

5. Reform design and implementation

Recently several analytical reports have critically assessed the UIPT system in the Punjab. These documents formulated proposals for the amendment of the UIPT Act 1958. These proposals are partly built into the Government of Punjab medium term policy framework, which focuses on the extension of tax base, updated revaluation and further decentralisation in property tax policy formulation (Government of Punjab, 2007).

However, implementation of these policy proposals would require wider political support, which can only be achieved through an improved policy design and implementation process.

The two objectives that must be in place are

Firstly, the information base of these wide ranging proposals has to be established. Presently no information is available on issues, like the actual UIPT collection by rating areas and consequently by local governments; scope of exemptions and reliefs; costs of tax administration by Districts. So the efficiency of tax administration cannot be assessed.

Secondly, the UIPT policy-making process is divided between various types of organisations. The Finance Department focuses on the increased level of UIPT revenue and the control over administrative expenditures on tax administration by limiting staff and operational costs.

The tax administration is delegated to two organisations: the Board of Revenue and the E&T Department. There is limited communication or exchange of information between these government units. The actual UIPT policy decisions are made by the E&T Department and the elected local governments are not involved either in the interpretation of the Act and regulations, or the staffing and management decisions.

Consequently the level of administrative and political accountability in the UIPT decision-making is very low. The E&T Department has the overall responsibility for collecting the UIPT, however under the present dual subordination it has limited powers. UIPT is a relatively small revenue source, compared to other taxes under its jurisdiction. Being a shared tax it is hard to raise the attention at Government of Punjab levels. For local governments there is no visible connection between UIPT and local service provision and quality, due to the low level of this shared tax being apportioned to several local authorities and therefore lacking any real local control over tax administration.

6. Policy process

UIPT policy making is ineffective; the tax administration design is highly centralised and fragmented. There is no property tax policy unit in the E&T Department. There is limited cooperation with other units of the provincial and federal government. The E&T Department is not in a position to make sound


23

revenue forecasts or impact assessment on tax policy or tax administration changes.

Presently no information is available on issues, like the actual UIPT collection by rating areas and consequently by local governments; scope of exemptions and reliefs; costs of tax administration by Districts. So the efficiency of tax administration cannot be assessed.

The UIPT policymaking process is divided between various types of organisations. The Finance Department focuses on the increased level of UIPT revenue and the control over administrative expenditures on tax administration by limiting staff and operational costs. The tax administration is assigned to two organisations: the Punjab unit of the Federal Board of Revenue and the E&T Department. There is limited communication or exchange of information between the government units.

The actual UIPT policy decisions are made by the E&T Department and the elected local governments are not involved either in the interpretation of the Act and other regulations, or in the staffing and management decisions. Consequently the level of administrative and political accountability in the UIPT related decision-making is very low.

The E&T Department has overall responsibility for collecting the UIPT, however under the present dual subordination it has limited powers. UIPT is a relatively small revenue source, compared to other taxes under its jurisdiction. Being a shared tax it is hard to raise the attention at the Government of Punjab. At local government level there is no visible connection between UIPT and local service performance, due to the low level of this shared tax apportioned to several local authorities and lacking real local control over tax administration.

The lack of policy development capacity and cooperation with the Finance Department on tax policy issues subsequently results in few, if any, well designed, assessed and actioned proposals. The medium term UIPT reform program aimed at setting up a steering committee and specific task force teams for managing the reform process, but it is not yet in place.

In the budgeting process tax policy proposals are not properly researched and insufficient time is left for preparing the amendments and organisational changes. Implementation of the actions specified by the medium term UIPT policy framework is not related to the budgeting process. However when amendments in the tax law are made as part of the budget determination, the parliamentary procedures are simplified, as no committee approvals are needed (because it is deemed to be a “money bill”).


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Section Five Situational Analysis - UIPT Administration

1. Taxable properties

There are some 2.6 million properties shown in the current tax base of which some 1.2 Million are subject to the property tax, which means approximately 56% of properties are the subject of exemptions under the current UIPT legislation (Punjab total, without data from the Rawalpindi Division).

If the draft legislation were to be adopted it has been estimated that there could be up to 5 million taxable properties across the Punjab.

2. Incomplete database

It is clear that the tax databases are not complete and large tranches of properties are not included. There are two main reasons for this:

(a) Properties not being properly recorded, either because the latest changes are not documented or simply the function is not correctly reported (e.g. commercial is qualified as residential).

(b) The more significant losses are caused by failure to include newly-built urban areas into the tax net, because the TMA’s do not declare them as rating areas.

The draft legislation overcomes this issue by declaring all TMA’s as rating areas by law, however, even in the context of the current UIPT legislation the tax base could be widened to incorporate those areas that are urban in nature but still classified as rural or not declared as rating areas by resolution of the TMA’s. This can be done without any legislative changes.

3. The assessment process

The UIPT Act 1958 requires that a valuation list is prepared showing all the information relevant to the individual properties. The valuation list is prepared by visiting all properties and issuing a preliminary form with the required identification information (property number, owner’s name), description of the property and calculation of the proposed Gross Annual Rental Value (GARV). If there are no objections by the owner, then the relevant property tax form is issued, which contains the property description and GARV.

Although the assessment of taxable properties is intended to be based on rental values this process was abrogated in favour of a valuation table based system in 2001.

The valuation table provides a basic categorisation of land and buildings in seven classes, separating annual rental value by the location (main or off road), rented or owned and by size. These valuation tables are specified for residential, commercial and industrial property (in the latter case only two classes of property). The tables are supposed to be updated every five years, but there has been no updating since they were introduced in spite of the fact that: -

The initial tables were set at below rental market values;

There has been a considerable rise in rental values in the intervening period since 2001; and


25

A further survey was undertaken in 2006 but the values were not adopted.

The outdated annual rental value in the tables does not reflect the actual value of the property. According to the statistical reports between 2000 and 2006 there was a 41% increase in house rents, 52% in the price of building materials9. In addition, due to urban immigration there was an increase in demand, so the annual rental value could have doubled in this period.

A further survey has taken place in 2008 and 2009 but no decision has yet been whether this will result in updated tables.

The assessment process is manual and requires a huge input of manpower and time to undertake a revaluation of all properties. If the number of properties through the reform process expands to five million the resources required to inspect all properties, develop the valuation tables and then to apply new values all in a timely manner would be all but impossible.

The way forward to ensure a high quality and timely assessment process requires, in our view, consideration being given to the introduction of a mass appraisal methodology.

4. Mass Appraisal

Mass appraisal can have different connotations, but has been defined by legislation in Alberta, Canada as being “the process of preparing assessments for a group of properties, as of a given date, using standard methods, common data and allowing for statistical testing” (McClung, 2000).

Many countries have moved from single parcel appraisals, whereby each property is inspected and valued individually, to Computer Aided Mass Appraisal (CAMA).

While single parcel appraisals are credited for producing accurate valuations, they are manpower, cost and time intensive and often result in out-of-date and incomplete valuation rolls.

CAMA requires the development of robust regression models that can be employed to estimate value given inputs for the various property-specific and neighbourhood characteristics. The application of CAMA requires a good understanding of econometric modeling and the ability to cope with misspecifications of the regression model.

There are now a large number of countries that have adopted mass valuation techniques and, these include the United States, Canada, Denmark, Sweden, Chile, Indonesia, Estonia, and United Kingdom.

It should be noted that CAMA cannot increase valuation precision / accuracy, but potentially can inject more consistency into the valuation process. CAMA is also likely to make complete property revaluations, that are required on a regular basis, attainable more quickly and cheaply.10

9 Punjab Development Statistics, 2008, Bureau of Statistics, Lahore

10 Franzsen, R., Johnstone, D., Johnstone, T. and McCluskey, W. (2002), Report on the Evaluation of the

Rating Valuation Consultancy Services in Dar es Salaam and Eight Project Towns, Sponsored by

Ministry of Regional Administration and Local Government (Tanzania), The World Bank, Public works

and Government Services Canada and The Royal Institution of Surveyors Foundation.


26

5. Quality of records

The system of assessment is manual and the property tax records are held in a series of manual registers. The Inspectors who are also involved in the billing, collection and enforcement of the tax gather the basic information about properties and there is little or no quality control or internal control in place to ensure that all data is recorded accurately.

It is considered that the quality of the basic data held on individual properties is poor and this is giving rise to concern as the data is transferred in to a computerised form. There is no cooperation with other departments for improving the register and the information on taxable property e.g by using cross references, cross check for data verification.

6. Efficiency of Tax Collection

It is widely recognised that efficiency in the tax collection process is low and this is reflected in low collection levels and an increasing level of arrears. In the financial year 2006/07 PKR 2.2bn was collected, while in the previous fiscal year only PKR 1.1bn was collected (one third of the budgeted appropriation). In the current financial year it is estimated that of PKR 6bn debit only some PKR 2.5bn will be collected.

Local staff in the E&T Department is responsible for issuing and delivering the UIPT bill (Challan) because they know the taxable properties and have access to taxpayers in their own property tax circles. There are 20 different forms that are used during the entire collection process, but none of them are available online11.

The payments can be made at the National Bank of Pakistan, the State Bank of Pakistan or at the post office. No payments can be made in the E&T District Offices. The actual flow of payments is initiated by issuing the UIPT invoice (Challan), together with the relevant demand notice form (PT 10). The taxpayer makes the payment and the money is deposited in the Provincial accounts. The bank sends two parts of the Challan to the Revenue Department (Treasury Section) and the taxpayer’s part of the Challan is returned and registered (photocopied) at the E&T District Office.

The Treasury Section keeps one copy and sends the other copy to the Central Daily Collection (CDC) Branch of the E&T Department for records. The payments can be identified by zones, rating areas and each relevant UIPT Circle Inspector receives this information as evidence of payment, which is then entered in the relevant property tax form (PT 8 -Tax demand and receipt register).

Sending a payment reminder commences enforcement of UIPT. It is usually sent to some 40% of taxpayers, together with a penalty notice. According to the E&T Department staff half of the taxpayers cannot afford to pay - mostly the residential property owners.

11

The property tax forms are listed on http://www.urbanunit.gov.pk/downloads/rt-UIPTP.pdf


27

In practice no notices are sent after the date the UIPT is due (August 31 in each fiscal year) and there is no information on penalties.

Objections and appeals are typically made in a valuation period and some 25% of E&T Department decisions are challenged, but this also includes even simple title clarification cases. Only 10% of these cases go to court.

7. Low collection levels

By international standards the level of collection is low and tax coverage is uncertain. In our experience collection levels tend to be low for a variety of reasons and it appears to us that at least some of the relevant reasons are: -

(a) Manual based system;

(b) Low staff motivation

(c) Lack of organisational incentives;

(d) Poor administration;

(e) Lack of enforcement action;

(f) People lack a payment mentality

As was noted in the World Bank Report (2008)12 “the level of collections is low in the absolute, and it is low by comparison with other developing countries.”

In addition, whilst there are departmental instructions these are generic in nature and are not supported by working practices and procedure manuals for individual staff. A lack of written working practices in a dispersed management structure can lead to inconsistencies between district offices and disparate operational working practices developing.

There is little evidence of internal check and separation of duties in the way in which work is organized e.g. the UIPT inspectors provide the information about the assessment of properties, they undertake billing and they enforce and collect the sums due. Good accounting practice recommends the segregation of duties to reduce the possibility of fraud and corruption taking place.

All of these issues need to be addressed prior to the implementation of a new tax system. Simply to implement a new system within the present structure and culture would lead to failure.

8. Customer service

On the basis of the District offices that the Team visited, and we were informed that these are typical of all 35 offices, public access is poor as are customer facilities and of a very low standard by international standards. There are no structured reception facilities and the public are allowed to wander around the buildings until they find the appropriate inspector or his clerk. They are then interviewed at the Inspectors’ workstation.

12

Pakistan Provincial Government Study, World Bank, 2008


28

The state of decoration is low and the public access areas are simply not welcoming. Interestingly we revisited this office and in the intervening period chairs had been provided for the public in the waiting area.

This was in complete contrast to the Motor Vehicle Taxation office that we visited where there was a welcoming reception facility with customer service staff available to meet the visitors as can be seen in the photographs below: -

9. Performance Management and Quality Control

Effectively there is little or no measurement of performance either at a departmental level or at an individual staff level. There is no performance management framework bringing together the strategies, plans, policies, performance measures that enable residents, politicians, managers and other stakeholders to see how the departments ‘measure up’ in comparison to their own previous performance and, where relevant, in comparison to other organisations.

There is a lack of management information and little ability in the way in which information is currently is held to undertake detailed analysis of revenue generation or breakdown over zones, districts etc.

As there is no performance management framework almost by definition there


29

is little quality control exercised.

A performance management framework would enable E&T to provide a consistent approach to the way service performance and quality is managed, monitored, reviewed and reported at all levels in the organization.


30

Section Six Situational Analysis - Information Technology

The following section provides a description of the E&T applications currently in development and the existing infrastructure available to implement those systems

1. ETAC System

The analysis of the Excise and Taxation Appraisal and Collection (ETAC) System is based on a demonstration of the application; a presentation made to our team by the developers of the system; a question and answer session; and a copy of the Software Requirements Specification. In addition, a limited demo version was made available of the web based application.

1.1 History of the ETAC project initiation

This project was conceived approximately three years ago and NESPAK (National Engineering Services Pakistan (Pvt) Limited) was asked to put together a software requirements document to enable the work to be put out to tender. Acrologix (Pvt) Limited won this contract and have subsequently developed the system over a period of around 12 to 18 months.

1.2 Overview of the ETAC System

The ETAC system is a web based application and has been developed on a Linux platform, using Apache as the web server, PHP as the development environment and MySQL as the database.

The software requirements specification has been created based on the existing paper based taxation system in use within the Punjab. The application that has been developed has provided an electronic version of this manual system and appears to have most of the core components that a property tax system should have: -

An assessment (Valuation) system

A Billing system

An enforcement system

What appears to be absent from the current system is: -

An automated payments processing/collection system

A comprehensive auditing function

A built-in help system/training mode

User defined reporting/significant MIS facilities

It is understood that additional functionality is now being added to the ETAC system as part of ongoing consultations between Acrologix and the Excise & Taxation Department. The additional functionality is being added in an ad-hoc manner with no clearly defined second phase of development specifying set objectives.


31

1.3 ETAC System Usage

Access to the ETAC application is via a login screen where the user provides a username and password. Role based security is implemented and on determining who has logged in, the appropriate menu is displayed on the left side of the screen. For example, if an inspector logs in, they will have access to various options when dealing with individual units; demands; penalties; printing Challans; managing receipts; and the production of various reports relating to PT-1 to PT-20.

The key functionality for the menu options appears to be in place and in common with similar applications is heavily dependant on the quality of the data that is entered into the system. No comment can be made on the quality of the data input as it is currently being performed.

It is noted that as part of the demonstration of the GIS and ETAC systems, that discrepancies were shown between the satellite imagery, photographs taken and attached to each unit’s record and the data entered from the registers. This indicates that there will be one immediate benefit of adopting this system, in that a project can be initiated to check the three sources of information against each other for such discrepancies and corrective action taken.

1.4 Comment on the ETAC Project

Looking at the whole of the project, from the starting up of the project through, inception to the current stage of development, It would appear that this project has a number of issues: -

Software has been developed to meet the Software Requirements Specification (SRS), which appears to be largely based on being an electronic version of the manual system

New additional requirements are now being requested in what appears to be an ad-hoc manner (as the result of user testing).

There has been limited involvement in the development of the system and exposure of the developed system with people at the various levels in the organisation (e.g. the inspectors in the districts)

1.5 Issues

It is accepted that this system, although we understand has been through some form of user acceptance testing and sign-off, is still in development. However, the initial comments on the system presented to the team are: -

Despite being in the UIPT system, some dialog headings refer to Entertainment Tax.

There appears to be little or no validation of dates that are entered in as free-text.

The layout of some of the dialogs and forms needs to be refined.

1.6 Fit for Purpose Comment

The ETAC system appears to be an electronic version of the manual system currently in place within the districts. Additional functionality is being added as the users are getting familiar with the system and determine where there is either a gap in the original specifications or they realise where additional new functionality can be added to take advantage of the implementation.


32

It is recognised that the ETAC system will provide a good stepping-stone into a computerised workplace, providing the core components to, for example, reduce corruption and ensure that all properties are included within the tax collection process. This system can be implemented as it stands (with the appropriate levels of user training), however, the ETAC system must be subject to additional development phases; with specific phased projects initiated to capture new and changing requirements and to ensure a consistent approach to the development/evolution of the system.

2. GIS System

A Geographical Information System is an application that allows the integration, storage, editing, analysis, sharing and display of geographic based information. In a more generic sense, GIS applications are tools that allow users to create interactive queries (user created searches), analyze spatial information, edit data maps and present the results of all these actions.

Increasingly governments and companies are using Geographical Information Systems to help organise, analyze and present the vast amount of data that they hold in a meaningful way. If it were determined develop a mass appraisal system then integration with the GIS system would be an inherent part of the development in order to take advantage of the mapping.

2.1 Approach

The Urban Unit, Planning and Development Department of the Punjab Government have decided to develop their own GIS application and they have developed a system called IRIS13. This system is being used to record a number of different systems including: -

Electricity

Water and sewage

Properties

The development of this system is ongoing, however, the GIS application is functioning and is already capable of being a useful tool and provide a number of quick-win benefits. The GIS application has been developed using JSP (Java Server Pages), AJAX, Oracle 10g on a Windows platform.

The satellite imagery used within the IRIS system was purchased in 2006 from a high resolution commercial earth observation satellite called QuickBird which was launched in October 2001. This satellite collects the second highest resolution commercial imagery of earth, with resolutions of 60-70 centimetre (2ft-2.3ft) per pixel for panchromatic (black and white), natural colour, colour infrared, or four band pan sharpened images and 2.4 (8ft) and 2.8 meter (9.2ft) per pixel for multispectral (colour) images. At these resolutions, it is possible to identify features, classify image data and detect changes from recent imagery. The QuickBird image scan collection size is 16.5km (10.3 miles) wide at nadir; this allows large areas to be mapped in one pass.

13

It is noted that there are systems available in other countries that are called IRIS. The naming of the

Punjab Government GIS system is coincidental and there are no links to existing systems.


33

2.2 Costs

QuickBird image product prices depend on the following influencing factors: -

Area of Interest

Required licence type

Tasking options

Product processing level

Product type (panchromatic, multispectral etc)

The table below gives a rough indication of the prices involved per square kilometre and is exclusive of any local taxes. It should also be noted that individual organisations or governments may negotiate further discounts based on local arrangements. As the costs involved in providing the imagery for IRIS were not available at the time of our visit, this information is provided in order to allow a rough estimation of the costs involved.

Product Panchromatic (USD/km2) Notes

Basic imagery 22.50 Minimum orders apply

Standard imagery 22.50 Minimum orders apply

Ortho-rectified imagery 90.00 Minimum orders apply

There are various licence fees that are linked to the use of the satellite imagery including single organisation (no extra fee), multiple (up to 10) organisations (Additional 25%) and multiple (10+) organisations (negotiable). Subscriptions are also available.

2.3 Current Situation

The satellite imagery was purchased in 2006 and there have been no updates in the intervening period. There was a flyover planned for 2006, but due to budgetary issues, this was delayed. The flyover is now planned for the second half of 2009.

It is recognised that they need to augment the information stored within the system and techniques such as LiDAR (Light Detection And Ranging) are being considered. The use of aircraft fitted with this technology would allow 3d imaging to be captured at resolutions of 10cm or greater (per pixel) depending on the distance that the image was captured at and would provide a digital surface model – a topographic model of the survey area producing a highly accurate, high resolution model of the ground including buildings, vegetation, roads, and other terrain features.

In addition, the various boundaries (including district, Tehsil and union council) have been implemented and the current circles have been recorded using the GIS application. This has identified areas that are not currently assessed.

The GIS team have built in a high level of security to the system to ensure that only authorised personnel can access the system.


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Figure 1

Figure 2

2.4 Links to the ETAC System

The Acrologix system provides the unit numbers for the identified properties within the GIS application. When a property is selected, the unit number is used to access the property database and the relevant information retrieved.

It is noted that there is no consistent approach to providing each unit in different districts with a similar coding convention. The existing references are capable of providing the required functionality, however, it is recommended that a standard be applied for referencing each unit across the whole of the Punjab.

A separate project was initiated to take pictures of all the properties within Lahore. The E&T Department paid 150 students to capture images of the properties and these images have been stored in a separate database and a link made to the appropriate record within the GIS.

3. Infrastructure

As part of the project, we visited what was described as a representative district office situated in one of the suburbs of Lahore, which appeared to be located in a side street off a main road. The district office occupies a detached building (figure 1).

The office is surrounded by what appears to be a mixture of residential and commercial properties. The building appears to have a continuous wall around the perimeter of the property and access is through a gate at the

front.

There appears to be a constant stream of people going in and out of the building and security is low-key. The ground floor is based around a central entrance vestibule, with various rooms off it and a set of stairs to the second floor. Members of the pubic are seen by the staff of the district office in one of these ground floor rooms.

3.1 Electricity Supply

There appears to be a shortage of capacity within the power supply network, this in conjunction with other issues means that all buildings face either power outages or brown-outs (characterised by a short term reduction in the power supply that causes the lights to flicker). There were various estimates of the number of outages experienced during a typical day and ranged from two to six. The lengths of the individual outages were estimated at anything between a few seconds and up to four hours.

It is clear that in order to implement a computer system within any E&T department office that a reliable power supply would need to be made available.


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Figure 3

Figure 4

The simple solution is to provide a generator with the appropriate capacity and maintenance contract. In addition to the generator, an Uninterruptable Power Supply (UPS) is required to ensure that the computer system and network continue to run whilst the power supply is switched over from the main grid to the generator.

The power supply cabling in and around the district office that we visited appeared to be chaotic and potentially prone to failure due to the manner in which it has been installed. The cables were run from the main pole to the building via a heavy duty power cable, however there were other cables lying on top of the cable (Figure 2), and the supply to the building itself appeared to be poorly anchored (Figure 3 and 4) – in fact an offshoot of the cable appeared to run around the side of the building on the floor. The office we visited did not have a generator due to the costs involved in purchasing, installing and maintaining.

3.2 Communications

The district office has access to the telephone network, however the cabling, as with the electricity cabling is in a poor state (figure 5). As part of our discussions with the IT department, they indicated that there is a plan to connect each of the district offices to the main office via DSL (Digital Subscriber Line) at the currently available speeds of either 256 or 512 kbit/s (kilobits per second). Where DSL is not available or impractical, there is the option of using VSAT (Very Small Aperture Terminal), which is a satellite communications system that is available to home, and businesses; however, this is a relatively expensive solution. Depending on the supplier, VSAT can offer similar speeds to DSL.

With regards to the bandwidth required for data to be sent from the satellite/district offices to the head office, there does not appear to have been any capacity planning performed to determine if online backups or data transfer could be achieved within defined periods of time. It was suggested that offsite backups may be achieved by writing the data to alternate media and couriered from one site to another.

3.3 Personal Computers

The level of computerisation within the various buildings that we visited varied considerable. The Urban Unit and head office appeared to have a significant number of personal computers throughout and in use; however, the E&T district office only had three. Within the district office; one of the computers was in the

Figure 5


36

Directors office; another was in an upstairs office and the third one consisted of a base unit only and did not have a keyboard, mouse or display unit.

The level of computerisation within the district office can be described as non-existent.

If the proposed roll-out of providing each of the district offices a server running the ETAC system is adopted, each of the designated buildings will need to have a server room, that has sufficient climate control to control the temperature and humidity to keep the stress on the IT equipment to a minimum.

3.4 Local Area Network

As with the situation regarding personal computers, the district office that we visited did not have any discernable local area network (LAN).

3.5 Software

The ETAC system is currently under development and is nearing completion. It is understood that there will be a requirement for additional software, including Microsoft Office and antivirus software.

3.6 Email

During our two week mission we met a large number of people and were handed their business cards, it is noted that there does not appear to be a centralised email system, where all employees are allocated an email address. The various do not departments appear to have their own registered domain names.

3.7 Security

Physical security within the various departments and buildings varies in sophistication from low-key to highly visible.

4. Support Mechanisms

4.1 Intranet

There was no evidence that an intranet exists that is geared towards the various offices, roles or staff within the department. Due to the lack of a departmental wide computer network, the effectiveness of any existing intranet would be greatly diminished.

4.2 Training

With the imminent implementation of a new property tax system, there will be a need for initial and ongoing training to be provided. There appears to be no training infrastructure within the department and no computer based training for to allow personal development at the users pace.

4.3 Technical Support

The E&T Directorate appear to be serviced by a competent and mature IT department. This conclusion is based on: -

Documentation provided to us by that department, was present, clear and well structured.


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Evidence of various projects that they have initiated in respect of the computerisation of the Motor Tax Collection offices and appear to be delivering on.

Excise and Taxation Department has to rely on the central IT for allitshere is a specific Excise and Taxation department IT Support function created to oversee the implementation and maintenance of systems and hardware but within and adhering to the overall policy direction of the provincial government IT.

4.4 Data Protection

With the proliferation of computer systems and the increase in the amount of data held about the individual and the ease in which that information can be accessed, considerations about what information is held and who has access to it needs to be determined.

4.5 Acceptable Use Policies

With the wider adoption of computer systems within the E&T Department and potential access to the internet, there needs to be rules laid down about what web content and emails can be accessed using the computers within the department. The I.P. Network Security Policy document available within the department outlines the policies to:

Identify who may access network equipment.

Define how access to the network is to be controlled.

Define how data within the department is to be protected.

4.6 Data Entry

A major project within the overall programme is to capture all the data stored within the various books held at the district offices into electronic form. There is a dedicated data entry team working on computerising these records.

The team currently consists of 12 people who are entering around 1000 records per day. The total number of records entered at the last week of February stood at 88,000.

In February, a new project manager had been appointed to oversee the data entry process and a proposal to increase the number of data entry people to around 100 had been made. An ambitious target has been set to enter 1.8 million records within 6 months. This means that each member of the data entry team has to enter approximately 100 records per day.

The time required to enter in each record varies depending on the type of property and the complexity of the record. Estimates of the time required to enter in each record vary from 2 minutes upwards for simple properties; Commercial properties can take considerably longer.

Historical data (the data from the various registers kept within each district office that span back up to 40 years) must be subject to document scanning and storage, but it is not recommended that this data is entered into the new ETAC system. The registers could then be stored in a centralised document library/storage facility and kept for reference purposes.


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Section Seven Major gaps and Change Issues

1 Introduction

This section identifies the gaps in, and challenges to, the current administration of the UIPT and is based on the situational analysis set out in the previous sections of this report. This gap analysis will be used to inform the recommendations that will be made in the blue print and the action plan for implementing a new property tax based on the reform process.

2 Human Resources (Section 2)

2.1 Dual subordination

E&T Department dual subordination results in a mixed organisational and management structure that causes confusion in the hierarchy. Based on the Punjab Local Government Ordinance the field offices are devolved to District governments, but in reality they are controlled by provincial level.

Devolution of E&T Department Offices to the City Districts Governments and TMA’s is formal. E&T Department and its local offices do not report to District Councils / TMA's. The internal management structure is dominated by the Provincial government rules without assigning real powers to sub-provincial level.

2.2 Functional organization of the E&T Department

The current dispersed management structure contributes to the inefficiency of the department, in particular:

Organisational structure - The structure of the department leads to a dispersed management style and can create problems with communication between the centre and the dispersed offices.

Control - The dispersed management model can lead to a lack of effective management control in relation to the staff at district level and there appears to be a lack of effective audit.

A lack of control can lead to poor working practices and provides the opportunity for corruption.

In addition, the overlap of responsibilities between the various taxes means that staff find it difficult to determine their priorities. The nature of property tax is such that it should be delivered by a clearly focused service and the administration of the other taxes should be separate from the property tax. This would avoid the issue of competing priorities for the staff who have to deal with a variety of taxes.

2.3 Lack of specialised, trained staff and training programmes

There is no culture or systematic training in the civil service at provincial level. No attempt is made to measure the training need. The Provincial Management Service provides general public administration training. No specialised training is provided in relation to tax policy design, valuation and collection. Appropriate qualification related, external training with proper accreditation is also not available in Pakistan


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2.4 No performance based staff motivation measures

There are limited career options inside the E&T Department and a very high staff turnover. According to the civil service regulations only 30% of the field staff can be promoted internally, the majority should be newly appointed through a competitive process, managed by the Provincial Management Service under the Public Service Commission. This leads to a long waiting time for the staff, so approximately half of the new employees leave within a year to other units of the public sector.

Formally the salaries and the establishments in the field offices are determined by the Districts / TMA’s, and the interpretation of the general civil service rules at E&T Department does not allow any refinement of the pay scale or the introduction of performance based pay or promotion only the negative tools are available, like relocation or dismissal of the staff.

2.5 Risk of corruption

The present structure and organization of the E&T department with the lack of internal control, internal check and quality control combined with a relatively high number of low paid staff provides the ingredients for a culture of dependency and leaves the organization open to high levels of corruption.

2.6 No change management

The E&T Departments management and staff acknowledge the need for UIPT reforms, however, no systematic programs have been drawn up to develop and introduce the recognised changes and resolve the perceived gaps.

The overall perception is that an increase in number of employees, the introduction of performance related pay and a more educated staff will create better results, i.e. higher UIPT revenues.

3. Governance and Fiscal Issues (Section 3)

3.1 Lack of incentives

The intergovernmental transfer system does not provide sufficient incentives at sub-provincial level governments for increasing UIPT revenues and the revenue sharing mechanisms are not favourable for the local governments, as they do not take into account the property tax raising capacity and most of the reallocated UIPT goes to WASA. The annual ratios of UIPT sharing are not predictable and the actual collection is volatile.

3.2 Lack of revenue equalisation

There is no effective revenue equalisation between local governments to try and ensure at least a standard level of service delivery that allows for the differences between local authorities.

3.3 Lack of accountability of local governments

Because of the weak relationship between the services provided, service performance, UIPT policy decisions and the tax collection efforts there is no accountability at local government level.


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4. Tax Policy Issues (Section 4)

4.1 Policy process

UIPT policy making is ineffective; tax administration design is highly centralised and fragmented. There is limited cooperation with other units of the provincial and federal government. E&T Department is not in a position to make sound revenue forecasts or impact assessments on tax policy or tax administration changes.

In the budgeting process tax policy proposals are not properly researched and insufficient time is allowed for preparing the amendments and organisational changes and implementation of the actions specified by the medium term UIPT policy framework is not connected to the budgetary process.

4.2 Flat tax rate

The UIPT is essentially a regressive tax, with a typical rate of 25% for most of the properties. The rate has not changed since 2002.

5. UIPT Administration (Section 5)

5.1 Lack of a comprehensive tax base

The tax base is not comprehensive for a number of reasons:-

(a) As the cities have developed a number of areas that were classified as rural but have, de facto, become urban have not been identified by the TMA’s as urban for the purposes of UIPT.

(b) A lack of quality control in relation to the properties that have been included in the valuation list and whether they are all assesses and classified correctly.

(c) Rural areas are not included in the database.

(d) Exemptions are not included in the valuation list.

The draft legislation (Urban Unit, Planning and Development Department / World Bank 2008) overcomes the above issues by declaring all the TMA’s as rating areas, however, even in the context of the current UIPT legislation the tax base could be widened to incorporate those areas that are urban in nature but still classified as rural or not declared as rating areas by resolution of the TMA’s. This can be done without any legislative changes.

5.2 Lack of revaluation

The valuation of property is substantially lower than the current market value and the rental values of property because there has not been a revaluation since 2001. According to the statistical reports between 2000 and 2006 there was a 41% increase in house rent, 52% in the price of building materials.

In addition, due to the urban immigration there was an increase in demand with the resultant impact on rental and capital values.

5.3 Valuation tables do not reflect market value

The valuation tables provide a basic categorisation of land and buildings between residential, commercial and industrial property. The initial tables were


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set at below rental market values in 2001 and have continued to fall behind because of inflationary pressures in the property market.

5.4 Lack of quality in the records

The system of assessment is manual and the property tax records are held in a series of manual registers and there is little or no quality control or internal control in place to ensure that all data is recorded accurately.

It is considered that the quality of the basic data held on individual properties is poor and this is giving rise to concern as the data is transferred in to a computerised form. There is no cooperation with other departments for improving the register and the information on taxable property.

5.5 Lack of efficiency in tax collection

Collection levels are low and it is widely believed within the Punjab Government that efficiency in the tax collection process is low and this is reflected in collection levels of approximately 50% with an increasing level of arrears.

5.6 Low levels of enforcement

Beyond the sending of a reminder after payment is due little enforcement action is taken leading to an increasing level of arrears year on year. The system is manual and relies on inspectors undertaking the enforcement process.

5.7 Lack of procedure manuals

Whilst there are departmental instructions these are generic in nature and are not supported by working practices and procedure manuals relating specifically to the property tax assessment, billing, collection and enforcement process.

5.8 Lack of internal check

There is little evidence of internal check and separation of duties in the way in which work is organized e.g. the UIPT inspectors provide the information about the assessment of properties, they undertake billing and they enforce and collect the sums due.

5.9 Lack of customer service ethos

It was our perception, on the basis of limited visits to district offices that there are no structured reception facilities and the public are allowed to wander around the buildings until they find the appropriate inspector or his clerk. They are then interviewed at the Inspectors’ workstation.

The state of decoration is low and the public access areas are simply not welcoming.

5.10 Lack of interaction with stakeholders

There is no mechanism in place to take account of the views of stakeholders in relation to the level and quality of service delivery. In this context stakeholders not only includes taxpayers but also other government departments.

5.11 Lack of performance management and quality control

There is little or no consistent and routine measurement of performance either at a departmental level or at an individual staff level. There is no performance management framework to enable the department’s managers to compare previous performance and, where relevant, in comparison to other


42

organisations. As there is no performance management framework almost by definition there is little quality control exercised.

6. Information Technology (Section 6)

6.1 Automated Manual Process

The Software Requirements Specification was based on the existing manual property tax system and developed without the involvement of front line staff. As the system is being tested, at the end of the development of the web based application, additional functionality is being requested as E&T officers get sight of the system for the first time. This is a serious oversight.

6.2 Lack of Automated Collection Process

The payment of property tax is based on the existing system. This system involved the taxpayer making a payment to the bank and obtaining a receipt. The paper receipt is then recorded into the system. There is no electronic transfer of payments, or automated notification of payment currently being developed in the new ETAC system.

6.3 Lack of comprehensive auditing function

It would appear from the limited information provided to us that there is no comprehensive auditing facility built into the ETAC system. It is important to record all transactions within a system that deal with both sensitive data and financial information. This information should be comprehensive and allow an independent body to trace the history of an individual record from the initial setting up of that record. This is important to minimise the risk of fraud.

6.4 Lack of built-in help system/training mode

There is no online help built into the system; no context sensitive help to provide information about the particular screen, field or text that the user is looking at; no built in training mode to help walk a user through the system. These facilities are standard on all systems, and are considered essential to complex and critical systems to help reduce the number of mistakes users make when interacting with the application.

6.5 Lack of user defined reports/MIS Facilities

The ETAC system has a number of predefined reports built into the system, however, there are no facilities to allow the user to create new reports and obtain slightly different information from the system. Most modern applications provide an interface to allow users to create reports on the fly.

6.6 Lack of data validation

The ETAC system allows data to be entered with minimal data verification and validation. It is possible to enter incorrect dates and information into the application that is subsequently added to a letter, notification or report. Modern systems validate as much information as is possible at the point of entry.

6.7 GIS Imagery is more than two years old

The satellite imagery contained within the GIS application was purchased in 2006. There was no subscription taken out to provide regular updates to this data and as a result it is now out of date. A regular update programme should be put in place.


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6.8 GIS information is two dimensional

The graphical information provided by the GIS application is essentially two-dimensional. Augmenting the satellite imagery with three-dimensional techniques such as LiDAR will help to automate the assessment of properties and improve the accuracy of the information contained within the system.

6.9 Inconsistencies between the GIS and ETAC Systems

As part of the demonstration of the GIS system, it is clear that an exercise of correlating the details entered into the ETAC database, the GIS application and the photographic database needs to be undertaken.

6.10 Lack of Infrastructure in the district offices

If the district office that we visited is representative of other Excise & Taxation offices then the infrastructure to support computerisation is non-existent. We visited a Motor Tax office in Lahore that shows what is possible. The programme that has been put in place to computerise Motor Tax collection should be extended to all the E&T offices.

6.11 Lack of capacity planning

We asked what capacity planning had been performed in relation to the bandwidth requirements when implementing the new ETAC system. We did not receive a clear answer to this question and based on this it would appear to us that no determination of required capacity to enable data exchange and off site database backups has been undertaken. This is a serious oversight.

6.12 Additional Software Requirements

The documentation supplied to us by the IT department acknowledges the requirements for additional software – such as an Office application and antivirus. However, the number of licences budgeted for appears to be on the low side. A clear determination of the requirements and numbers of licences needs to be undertaken. For example, it would be expected in most organisations that every PC that can have external media attached to it, or that can access the internet will have an antivirus application installed.

6.13 Centralised Email System

The E&T Department does not appear to have a centralised and controlled email system. Every member of staff should be allocated an email address with a common domain name. In this way, all communications to and from the department can be regulated. Example of the benefits of this approach are that malicious applications and spam can be filtered out.

6.14 Project Documentation is Out of Date

Some of the documentation provided to the team regarding various aspects of the programme is out of date. All project documentation must be regularly reviewed and kept up to date.

6.15 Lack of an overall Programme Manager

The various aspects of the programme to update the property tax collection system and provide the appropriate software applications, infrastructure and IT equipment do not appear to fall under the control of a recognised programme manager who would coordinate the day to day running of the various projects


44

on behalf of the Director General. In not having a programme manager overseeing the various projects the risk of failure is increased greatly.

6.16 Lack of a department-wide Intranet

Up-to-date, on-line training, documentation, applications, notices and events can be easily made available / disseminated to the staff within an organisation by using an Intranet. With the rollout of IT infrastructure, the provision of local area networks and communication links to all the district offices providing access to an intranet site, the ability to communicate to all employees becomes very easy.

6.17 Lack of targeted policies

We obtained a series of policy documents including an IT usage document. This document contained a wide range of usage policies. Specific Intranet/Internet/email usage policies should be implemented written in language appropriate for department staff.

All policies should contain clear guidance on what is and is not allowable. There should be a clear statement of intent as to when the policies are contravened.

6.18 Lack of data protection principles

It is important with an increasing amount of information being collected and made available on computer systems that the access to and availability of that data is controlled. There are two primary considerations: -

1. Clear guidelines for the organisation collecting the data regarding what is collected, how it is collected, how it is used and how it is shared.

2. A security policy; physical security (access to sites, IT equipment, portable storage); an information security management system; and implementation of a code of practice for information security management.

These policies should be written with the organisation’s staff in mind and communicated effectively. The general public must be made aware of the steps taken to secure their information and this will in turn increase their confidence and willingness in providing their details.

It is important that regular reviews are undertaken for all implemented policies.

6.19 Regular systems review

With the implementation of any new complex computer system, it is important to set up a user group that contains a representative cross section of lawmakers, managers and users to provide feedback regarding the computer application(s) and supporting systems. The company that developed the computer system should also be represented.

6.20 Lack of ongoing support contract with the developers

We understand from our meetings that the contract with Acrologix (Pvt) Limited comes to an end mid 2009. The developers of a complex system must be involved post implementation to ensure that the system is kept up to date, inline with changes to the law, issues are addressed and changes requested by the user group are implemented. It is essential that a support and maintenance


45

agreement should be put in place with the developers to ensure continuity of development.

6.21 Lack of IT orientated training programmes

It was unclear from our meetings with the various parties involved the comprehensive nature of the training programme designed for the staff that will be using the ETAC system. It is imperative that any training programme is fit for purpose. Support documentation must reflect both the system (allowing it to be used as a reference guide) and help support the training provided.

Annex 1: Organisational chart of Excise and Taxation Department

Director General

Additional DG

Excise Information

Bureau

Director HQ

Senior ETO HQ

Divisions

Sargodha

District Sargodha

Bhakkar

Khushab

Mianwali

Bahawalpur

District Bahawalpur

Bahawalnagar

Rahim Yar Khan

D.G. Khan

District D.G. Khan

Layyah

Muzaffargarh

Rajanpur

Gujranwala

District Gujranwala

Hafizabad

Gujrat

Mandi Bahauddin

Sialkot

Narowal

Lahore

District Lahore

Region A

Zones 1,3,4,10,11,

Excise Duty and proffesional Tax

Region C

SheikhupuraOkaraKasur

Motor Registration

and Taxation

Region B

Zones 5,6,7,9

Entertainment duty and hotel

Faisalabad

District Faislabad

Jhang

Toba Tek Singh

Multan

District Multan

Khanewal

Lodhran

Multan

Pak Pattan

Vehari

Rawalpindi

District Rawalpindi

Attock

Chakwal

Jhelum

Sahiwal

System Analyst

Computer Programmer

Opium Alkoloid Factory

Directorr Enforcement and Audit

Assistant Director Emforcement and

Audit

Annex 2 References

Miscellaneous

o Anwar, Haq Nawaz – Perveen, Sajida – Nousheen, Farhana – Ahmad, Zahoor, 2008: Physical Impact Assessment of Katchi Abadi Improvement Programme in Punjab-Pakistan. Pakistan Journal of Life and Social Sciences (2008), 6(2): 108-111

o Bahl, R.-Wallace, S.-Cyan, M. (2008): Pakistan: Provincial Government Taxation. World Bank-FBR-GSU

o Devolution in Pakistan, 2004. An Assessment and Recommendations for Action. ADB, DfID,

o World Bank

o S. Fawad Raza-Muhammad Almas-Kamran Ahmed: Land Records Information Management System. Manuscript

o Government of Punjab, 2007: Taxes Collected By Excise & Taxation Department. Public Financial Management Reports. Punjab Resources Management Program. Lahore

o Government of Punjab, 2007: Medium-Term Policy Framework of the Government of Punjab on the Urban Immovable Property Tax, 2007-2012, Draft

o Government of Punjab-WB-EU-DfID, 2005: Punjab Public Financial Management and Accountability Assessment, Report No. 32569-PAK. Financial Management Unit, South Asia Region

o Punjab Development Statistics, 2008. Bureau of Statistics, Government of the Punjab, Lahore

o Raza, S. Fawad – Almas, Muhammad – Ahmed, Kamran: Land Records Information Management System. Manuscript

o Siddique, Naveed Saleh, 2007: PROPERTY TAX SYSTEM IN THE PUNJAB POST DEVOLUTION SENARIO – A CASE FOR REFORMS. The Urban Unit, Planning and Development Department, Punjab

o Urban Unit: Tax Policy and Administration Functional Alignment and Assignment of Responsibilities for the UIPT System. P&D Department, Punjab

o World Bank, 2006: Property taxes in the large cities of Punjab Province, Pakistan, Sustainable Development Department, South Asia Region

o World Bank, 2008: Tax Policy Report. Tapping Tax Bases for Development. Report No. XX-PK

Laws and regulations:

o The Punjab Local Government Ordinance (No.XIII of 2001)

o Punjab Urban Immovable Property Tax Act, 1958

o THE PUNJAB URBAN IMMOVABLE PROPERTY (VALIDATION OF TAX) ACT, 1976, (Pb Act XX of 1976)

o Punjab Finance Act, 1972


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Government websites:

o Federal Board of Revenue: http://www.fbr.gov.pk/frs/

o National Reconstruction Bureau: http://www.nrb.gov.pk/

o PIFRA: http://www.pifra.gov.pk/

o Pubjab Resource Management Program: http://www.punjab-prmp.gov.pk/taxation_reforms.htm

o Punjab Gateway: http://pportal.punjab.gov.pk/portal/

o Statistics Division: http://www.statpak.gov.pk/

o Punjab Laws online: http://punjablaws.gov.pk/

http://www.fbr.gov.pk/frs/

http://www.nrb.gov.pk/

http://www.pifra.gov.pk/

http://www.punjab-prmp.gov.pk/taxation_reforms.htm

http://www.punjab-prmp.gov.pk/taxation_reforms.htm

http://pportal.punjab.gov.pk/portal/

http://www.statpak.gov.pk/

http://punjablaws.gov.pk/


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Annex 3 Acronyms / Abbreviations used in the Report

Acronym Description

AA Assessing Authority AETO Assistant Excise & Taxation officer ARV Annual Rental Value CDG City District Government DDO Deputy District Officer DG Director General DO District Officer E&T Excise & Taxation Department ETO Excise & Taxation Officer GAV Gross Annual Value GIS Geographical Information System GoPunjab Government of Punjab Province IPDF Infrastructure Project Development Facility LAMP Linux – Apache – MySQL – PHP LDA Lahore Development Authority LGO Punjab Local Government Ordinance of

2001 LGs Local Governments (CDG, TLG, ULG) LRA Land Revenue Act 1967 MIS Management Information System NAR Net Annual Rent O&M Operation and Maintenance PDD Planning & Development Department PFC Provincial Finance Commission PRMP Punjab Resource Management Program PT Property Tax PKR Pakistan Rupees SPU Strategic Policy Unit TMA Teshsil / Town Municipal Administration TMA Tehsil/Town Municipal Administration TMO Tehsil/Town Municipal Officer UC Union Council UIPT Urban Immovable Property Tax USPMU Urban Sector & Policy Management Unit WASA Water and Sanitation Agency

Documents

Government of the Punjab - World Bank...2012/04/26 · .4. The composition of the IRRV team is - David Magor, Chief Executive, IRRV, International Consultant (Taxation) Patrick Doherty,