Provincial Tax Reforms Properties • Owner-Occupied • Rented • Commercial TOTAL Tax Rate (%) 7.5% 15.0% 20.0% (Billion Rs) Tax Base Revenue 846 63.5 161 24.1 120 24.0 116 Therefore, the property tax could yield over Rs 115 billion, equivalent to 0.3 percent of the GDP. This is in comparison to the actual revenue of Rs 20 billion in the country. There may be an agreement reached between the Provincial Excise and Taxation Departments and the FBR on the valuation of properties. The latter agency has carried out recently a very comprehensive and careful capital valuation of properties in different cities of Pakistan at the level of localities/neighborhoods. The PE&T Departments should accept these valuations and apply a rate of 2 ½ percent to convert the capital value of properties into rental value. The rental value exemption may be raised to Rs 8,000 per month. The other exemptions should continue. Sales Tax on Services The sales tax on services is yielding significant revenues in all the four Provinces as shown in Table 10.4. The smaller Provinces are more dependent on the sales tax on services. Currently, 58 percent the tax revenues of the four Provincial Governments are generated from this tax. Also, the consumption of services is progressive in nature. Table 10.4: Revenue from the Sales Tax on Services 2020-21(R.E) Punjab 13.6.6 60 Sindh 125.0 54 Khyber-Pakhtunkhwa 19.1 58 Balochistan 12.5 71 TOTAL 293.2 58 Source: Provincial Budgets Unfortunately, there has been a‘race to the bottom’ with Provinces reducing their tax rates to attract the mobile tax bases. Currently, the sales tax rate is 14 percent in Sindh, 15 percent in Khyber-Pakhtunkhwa and Balochistan and 16 percent in Punjab. Services constitute over 57 percent of the GDP of Pakistan. However, there are large segments of each service sector in the informal part of the economy. Therefore, there is need to assess the size of the national tax base as follows: i) The shares of the value added in the formal component of different sectors, as esti­mated from the PBS Labor Force Survey of 2017-18 are as follows: 111