Strengthening Revenue Base in Gilgit -Baltistan

By Ashab Baig

GB legislative assembly has recently passed a bill to set up Gilgit-Baltistan Revenue Authority (GBRA) with a unanimous vote. The move is hailed as a first step towards economic self-reliance. However, entrusting the newly created Authority with a right mandate is equally important. Here is why!

GB represents a socioeconomic system that has undergone several epochs of economic transformation during its course to relative prosperity of present-day. During the past four decades, it has seen a massive transition from traditional forms of social organization towards the modernization of its economy. It has achieved substantial growth due to active role played by various development agencies that built on the traditional social systems. These efforts have contributed tremendously towards human development, poverty eradication and having the average incomes of the people more than trebled in the meanwhile. Improved human and social indicators, an increasingly better educated population and greater awareness with improved internet connectivity have left lasting marks on the socio-economic dynamics of GB.

However, these development processes arguably took place in GB in absence of a legitimate political, governance, and financial/revenue system of its own. The only source of revenues is the annual funds allocated by federal government to GB to run the regional affairs through an administrative arrangement.  Over the period of time the GB government has increasingly received substantial financial resources from federal government to support the local economy. Although GB’s constitutional status is not yet fully determined until the resolution of Kashmir issue according to UN resolutions, but the region has a local government setup that represents the people with the federation. The annual funds received from the center are spent on development and non-development expenditures. The total federal funds have increased over the years to nearly 120 billion in the financial year 2022-23. However, one of the downsides of over-dependence on federal funds is the dependency syndrome that inhibits GB’s ability to realize its true economic potential, and somehow this has to change.

Whereas, GB is enjoying certain exemptions on federal taxes until its true constitutional relation with Pakistan is fully determined subject to the resolution of Kashmir Issue, creation of a revenue authority is a much-needed development which will help mobilize financial resources at the local level. It is therefore equally important to give a clear and transparent mandate to the GBRA to identify revenue sources and generate finances effectively and equitably.

For example, GB is a tax haven for corporate businesses operating in the region. In Pakistan, medium and large-size businesses pay nearly 30% of corporate tax out of their gross profits. Whereas in GB, there is 0% tax on such entities. The GBRA may subject the local business entities with sizeable profits to at least 10% of local tax. The local tax can be justified for the fact that GB is an environmentally fragile region, and the local businesses earning profits should be subject to a local tax regime, to offset the environmental pollution they cause. Similarly, all the vehicles and cars entering GB should be subjected to a carbon fee in lieu of carbon emissions they create. Thus, taxes and fees charged on the pretext of environmental pollution should make a major revenue stream of GBRA.  Similarly, potential other revenue streams can be explored to strengthen the local revenue base in GB.

Another important dimension is the utilization of revenues generated by GBRA. As a matter of rule, such revenues should be earmarked solely for development purposes. The revenues should be specifically used for climate change adaptation and risk mitigation, community development, as well as in support of the local governance systems. Mechanisms should be in place to ensure transparency, accountability and sustainability at all levels.

However, care needs to be taken not to use GBRA as a pretext to impose the federal taxes from which GB has remained exempted so far. It should function independently and remain answerable only to the local legislators, who would set its mandate from time to time. All the stakeholders in GB should join hands to lent their support and cooperate to make this initiative possible and successful. Strengthening the domains of financial, economic and governance systems in GB is a sure way towards financial and economic self-reliance. We should unconditionally support such initiatives a as small step in present can be a harbinger of a giant leap in future!

The writer is an economic consultant based in Islamabad. He can be reached at: asahab.baig@gmail.com