Property tax experiment in Pakistan: incentivising tax collection and improving performance

Publication Details

Khan, A, Khwaja, A and Olken, B, 2016. Property tax experiment in Pakistan: incentivising tax collection and improving performance, 3ie Impact Evaluation Report 45. New Delhi: International Initiative for Impact Evaluation (3ie)

Link to Source
Adnan Khan, Asim Khwaja, Benjamin Olken
Institutional affiliations
None specified
Grant-holding institution
None specified
South Asia
Public Sector Management
Tax Reform, Civil Service Reform
Gender analysis
Tax Reform, Civil Service Reform
Gender analysis
Equity Focus
None specified
Evaluation design
Randomised Control Trials (RCT)
3ie Series Report
3ie Funding Window
Open Window Round 2


Researchers collaborated with the provincial government to undertake an evaluation of the impact a pay-for-performance scheme for tax collectors had on tax revenue, while maintaining or improving assessment accuracy and customer satisfaction.


Low tax revenues act as a serious constraint to economic growth, provision of services and, more generally, effective state-building. Pakistan, in particular, does poorly on tax revenue collection, including collecting property taxes. The lack of a motivated tax collection workforce is a contributing factor. In 2009, the Excise and Taxation (E&T) department in Pakistan’s Punjab province began implementing a series of human resource reforms designed to incentivise tax collection appropriately and improve overall departmental performance.  

Research questions

The impact evaluation addressed the following questions:

  1. Does monitoring sufficiently and providing monetary and non-monetary incentives increase the contribution of tax revenue by tax staff and citizen?
  2. Do performance pay packages increase revenue generation while retaining or raising customer satisfaction, quality of service and the accuracy of assessments?
  3. What is the impact of the supervisory  performance pay scheme and what is the overall economic impact of the schemes on the government and economy?
  4. What is the tax channel, patterns of bribe payments for the average property and Section 9 (newly assessed or re-assessed) properties and what is the impact on collections – tax base, exemptions and recovery rates?


Intervention design

All 482 tax circles ̶ geographical areas serviced by a set of tax collectors ̶ in Punjab were randomised into one of three treatment groups getting a pay-for-performance scheme or a control group. Here are the three pay-forperformance schemes:

  • Revenue-based honoraria. Tax officials were rewarded with bonus pay proportional to the additional revenue they collected above a predefined benchmark, which was determined by the historic levels of tax collection for each tax circle.
  • Revenue plus honorarium scheme. This scheme was similar to the above-mentioned, however checks against over-aggressive tax collection were incorporated by factoring in assessment accuracy and taxpayer satisfaction, through a third-party survey.
  • Flexible bonus scheme. In this scheme, tax officials were rewarded with additional bonus pay at the end of the year that was conditional on performance.

An additional scheme was added for supervisors in the E&T department and an alternative comparison group was introduced in the second year. In this second comparison group, information was provided on the tax collectors’ performance with no monetary incentive. This helped ensure that the effects of the pay for performance schemes were due to the pay-for-performance component and not simply to having information provided to tax collectors in a specific format.

Evaluation design

The evaluation design was a randomized controlled trial (RCT). Under this design more than 200 tax circles were chosen for three schemes through public ballot and their performance was tracked over two years. Changes in tax collected and the performance of the inspectors in the three schemes were compared against a comparison group (and in year 2, an information-only group as well) that operated under business as usual. Since balloting guaranteed that all groups were statistically equivalent, differences in collections could be attributed to the schemes. The RCT strategy design allowed the researchers to interpret any differences between the revenue-based and conditional fixed wage groups and a comparison group as causal.

Data Collection

The project utilised four primary types of data: (i) administrative property tax data (ii) HR records detailing inspector transfers and postings; (iii) a phone survey of inspectors measuring effort and monitoring from supervisors; and (iv) an independent survey of over 16,000 properties from all tax circles in Punjab that measured non-revenue outcomes such as customer satisfaction and accuracy of assessment. Furthermore, a third-party survey was conducted to do quality checks on the E&T Department.

Main findings

  • The treatment circles outperformed control circles by a margin of over 12 percentage points in total collections over the two-year treatment period.
  • Of the three schemes, the revenue-based honorarium scheme performed best in terms of impact on collections. In both years, this scheme consistently had the largest effect and the largest return on investment. However, the incentive schemes produced substantial and unambiguous results on revenue collection.
  • A third-party survey suggests that the E&T Department did not suffer any detectable quality of service costs (either in terms of customer satisfaction or assessment accuracy) as a result of incentivising inspectors.
  • The study has shown that performance pay does work in raising revenue.

Implications for policy and practice

  • Performance pay works in raising revenues and some form of monetary incentive has to be part of the performance management process for field-level staff.
  • A key element of an effective performance pay scheme is simple and clear directions that explicitly link to performance on objective dimensions.
  • It may be more cost-effective to introduce performance pay ‘periods’ every few years and the schemes should be designed differently for supervisory-level (versus field-level) staff.
  • Performance pay schemes may need to be monitored to ensure customer satisfaction. However, the current study do not show strong evidence on customer dissatisfaction and over taxation.
  • Performance pay schemes may have to be designed differently for supervisory tiers. The results of introducing the simplest revenue scheme (which worked the best for field staff) were not conclusive for supervisory staff; hence further reserach is required to design an effective supervisory scheme.

Implications for further research

There is need for further research to find more cost-effective, efficient method of raising tax revenue. While the project provided insights on monetary incentives, it did not cover non-monetary incentives. There is also scope for further research on complementary merit-based transfers and postings, and incentivising citizens by tying taxes to services directly.

Policy influence

The project resulted in additional outputs that improved the E&T department’s functioning. It led to the digitisation of the department’s historical circle-level collections data and standardisation of statement templates. It has also resulted in better monitoring practices to improve tax collection and staff performance, including the development of a data visualisation and management tool.

Encouraged by these results, the department has requested the researchers for a follow-up study to asses the impact of non-monetary incentives, such as merit-based transfer and posting in improving performance.

3ie recently provided funding for another impact evaluation that aims to understand if increasing voice and enhancing allocation in local service delivery can help rebuild the link between citizens and the state.

Additional publications


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