Pakistan commissions research to evaluate linkages between urban services and tax collection
Property taxes were introduced in Punjab, Pakistan, in 1958. However, over the years the process of tax collection has been slow to the point of stagnation. The tax has immense potential to improve and expand the tax base for financing the municipal government in Punjab. Collection of this tax could also promote broader efficiency objectives, as well as linkages between municipal services and their financing. It could also strengthen the contract between taxpayers and the state. In 2009, to incentivise tax collection, the Excise and Taxation Department of Punjab designed and implemented a series of human resource reforms, with a plan to improve overall departmental performance.
In 2010, 3ie collaborated with researchers from Innovations for Poverty Action and the Centre for Economic Research Pakistan to evaluate the performance of the intervention, which was intended to increase revenue without losing customer satisfaction.
Randomised controlled trials were conducted in 482 tax circles, which were The team conducted the evaluation in 482 tax circles, randomly divided into three treatment groups and one control group. They introduced three performance-based pay schemes for tax collection employees in the treatment groups: (1) a revenue-based honorarium scheme; (2) a revenue plus honorarium scheme; and (3) a conditional fixed wage (flexible bonus) scheme. They also measured the trade-offs that the government would experience in terms of increased revenue versus the political costs in terms of dissatisfaction among the public.
The findings showed that monetary incentives had significant positive impact on tax collection. The incentives improved revenues by 13 per cent more than usual and doubled the usual year-to-year rate of increase for the department. The return on investment was also positive. The evaluation suggested that simpler and objective-based performance pay schemes performed better than the other two schemes. However, the findings also indicated that the scheme needs to be efficiently monitored to ensure customer satisfaction. The evaluation demonstrated that it was cost-effective for the government to develop performance pay periods every few years.
Type of impact: Improve the culture of evidence use
When decision makers or implementers demonstrate positive attitudinal changes towards evidence use or towards information the research team provides. Examples include strengthening monitoring and evaluation systems, increasing understanding of evidence and openness to using it, integrating these systems more firmly into programming or commissioning another evaluation or review.
This is one of 3ie’s seven types of evidence use. Impact types are based on what we find in the monitoring data for an evaluation or review. Due to the nature of evidence-informed decision-making and action, 3ie looks for verifiable contributions that our evidence makes, not attribution.
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Driven by the positive results and demand for rigorous evidence from government decision makers, including the chief minister of Punjab, the research team is undertaking two other impact evaluations, one of which is supported through 3ie’s Development Priorities evidence programme. Encouraged by the results, the department has asked the researchers for a follow-up study to assess the impact of non-monetary incentives, such as merit-based transfer and posting, in improving performance. Further, the other evaluations will test whether increasing the alignment between the demand for and provision of urban services in a neighbourhood and how that links to taxes paid, may strengthen the social compact between the state and citizens.
International Initiative for Impact Evaluation (3ie), 2020. Pakistan commissions research to evaluate linkages between urban services and tax collection [online summary], Evidence Impact Summaries. New Delhi: 3ie.
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