A business operating across Pakistan should not have to navigate incompatible tax systems merely because its customers live in different provinces. A province should not have to surrender its constitutional authority to obtain a workable collection system. Citizens should not have to choose between administrative convenience and democratic control. A federation capable of fiscal justice must deliver all three: simpler compliance, secure revenue entitlements and governments answerable for spending.

Part III examined what should be taxed. Part IV considered Zakat and Ushr as institutions of responsibility and public trust. The next question is who should collect, who should decide and who should answer. A fair tax base can still produce an unfair settlement if collection is centralised without safeguards or revenue reaches governments without reaching services.

Our disagreement with Dr. Ehtisham Ahmad must be located precisely. In their supplied paper, Ahmad and Giorgio Brosio distinguish integrated administration from centralised policy and identify subnational rate-setting as important to autonomy. They also acknowledge the danger of stronger central control.¹ This is useful common ground. The unresolved question is how Pakistan would make those safeguards effective when control over information, appointments, refunds and cash transfers can confer power beyond the formal authority to set rates.

Their description of the 2010 settlement as a regression towards colonial arrangements is insufficient as a policy verdict. Fragmented compliance deserves criticism. Provincial consent remains indispensable. The democratic purpose of a constitutional settlement cannot be measured solely by the convenience it offers to a tax administrator. Pakistan’s institutional history requires us to ask whose discretion integration enlarges and whose remedies it strengthens.

The legal distinctions matter. Article 142 of the 1973 Constitution of Islamic republic of Pakistan allocates legislative competence; Entry 49 [Part I, Fourth Schedule to the Constitution] excludes sales tax on services from that federal tax entry. Article 144 permits Parliament to legislate on a provincial matter following assembly resolutions, with provincial amendment or repeal preserved. Article 147 concerns entrustment of executive functions, requiring federal consent and provincial assembly ratification within sixty days.² A shared portal, an administrative agreement and a transfer of legislative authority are different arrangements. Reform should specify which it requires.

Nor are we starting from nothing. The Federal Board of Revenue’s (FBR) Single Sales Tax Return documentation describes integration of return formats while retaining existing legal frameworks. Its rollout extended to exploration and production companies in oil and gas and to microfinance banks from the November 2024 tax period.³ These developments demonstrate practical cooperation. They do not establish that every taxpayer, conflicting rule or cross-jurisdiction credit has already been accommodated. The task is to complete integration and publish evidence of its performance.

We have long argued for federalised collection. Our later value added tax (VAT) series proposed a common interface with transparent allocation among governments.⁴ The distinction is fundamental: a national agency should serve the federation and its constituent units under an agreed mandate. Merely enlarging FBR and inviting provincial representatives to meetings would leave the central issue unresolved. Joint ownership must have consequences for appointments, budgets, data access, operating rules and dispute resolution.

The compact should specify service obligations that taxpayers can enforce. Common registration and invoice standards should be accompanied by coordinated audit selection and an identified lead authority. Participating governments should receive timely access to their revenue accounts. Changes to allocation rules should require the agreed approval procedure and public explanation. Information sharing must be purpose-bound and secure. Integration should reduce opportunities for arbitrary treatment rather than concentrate them behind one inaccessible screen.

Input credits and refunds are the decisive tests. Suppose a producer purchases a taxable service in one province and sells taxable goods under federal law. A common return cannot itself create a credit that legislation denies. Compatible laws must establish entitlement; an intergovernmental clearing arrangement must then settle the corresponding amounts. The purchaser should not finance a jurisdictional dispute. Governments must resolve their accounts without suspending legally admissible credit or refund.

Our proposed monthly statement would disclose output tax, admissible credits, refunds paid, outstanding claims by age, amounts allocated and settlement delays. Audit selection, appeals and collection costs should also be reported in aggregate. Gross receipts alone can reward the retention of taxpayers’ money. A system demanding to reduce the cost of doing business must show whether working capital is released and whether compliance takes less time.

Revenue protection must be equally explicit. Article 160(3A) safeguards the provinces’ collective share across National Finance Commission awards; clause (3B) requires twice-yearly monitoring reports to the legislatures.⁵ These safeguards should anchor the compact. A collecting agency should not acquire discretion to rewrite the fiscal bargain through delayed transfers, unexplained deductions or changes in accounting practice. Its task is to implement lawful entitlements with an auditable trial.

Accountability must continue below the provincial capital. Article 140A requires political, administrative and financial devolution to elected local representatives.⁶ Our proposal is to translate that obligation into predictable transfers, clearly assigned services and meaningful local revenue powers under provincial law. A council responsible for water supply needs a dependable budget, a published maintenance plan and authority commensurate with its duties. Residents should know whom to question when the taps remain dry.

Property taxation offers a practical connection between ownership and local services but requires protection against capture. Publish valuation methods and exemptions, provide independent appeals and permit carefully defined hardship relief. Show how receipts relate to the local budget without pretending every rupee must be earmarked. Provincial supervision should ensure minimum standards and fair treatment; it should not turn each routine expenditure into a request for political approval.

Poorer jurisdictions also need equalisation. Canada’s stated objective is comparable public services at comparable taxation, addressing differences in fiscal capacity.⁷ That principle is instructive without making the Canadian formula a Pakistani prescription.

Our formula should distinguish a weak revenue base from weak collection effort and recognise service costs, remoteness and deprivation. It should not reward a government simply because it chooses not to assess influential owners.

Equalising fiscal capacity does not by itself equalise household incomes or repair accumulated infrastructure deficits. Pakistan needs separately costed investment arrangements for neglected areas, with published selection criteria and independent assessment. A recurring service grant and a multi-year infrastructure programme solve different problems. Mixing them conceals whether a transfer maintains existing services, closes a historical gap or finances a political preference.

Zakat and Ushr funds must retain their distinct accounts, eligibility rules and audit requirements within any shared administrative system. Common identification can help prevent duplication; it cannot turn restricted receipts into unrestricted revenue. Likewise, a common tax collector cannot manufacture a national wealth-tax power merely by changing the heading on a return. Each proposed levy requires its own lawful basis and a clear account of who bears it.

Implementation should proceed through measured stages: reconcile existing liabilities and refunds, agree model rules, extend functioning shared services and test settlement arrangements before widening the mandate. Publish the baseline and assess changes in net receipts, refund delays, compliance costs and service delivery. These are proposed evaluation criteria, not demonstrated gains. Part VI will set out how to test them.

Pakistan’s choice is not exhausted by competing bureaucracies or unchecked central control. A federalised system can collect efficiently while preserving democratic authority, provided the safeguards are written into law and made usable by citizens. Fiscal justice requires more than knowing where the money was collected. People must be able to establish where it went, what it achieved and who must answer when it failed.

Endnotes

1. Ehtisham Ahmad and Giorgio Brosio, Evolution of theory of fiscal federalism and context: From the classics to digital transformation, supplied manuscript for the Jorge Martinez-Vazquez Festschrift, pp. 11 and 13–14. The manuscript expressly distinguishes administrative integration from policy centralisation and recognises central-control risks. The critique here concerns the safeguards needed in Pakistan. No public publication URL has been confirmed.
2. Constitution of the Islamic Republic of Pakistan, National Assembly consolidation amended to 21 November 2025: Articles 142, 144 and 147; Fourth Schedule, Federal Legislative List, Entry 49. The constitutional routes are distinct; their suitability depends on the final institutional design.
3. FBR, Single Sales Tax Return: An Overview, pp. 2–4, especially the guiding principle of retaining existing legal frameworks. See also the official announcement extending the return to E&P companies and microfinance banks from November 2024. These sources establish a sectoral rollout, not universal coverage or verified savings.
4. Dr. Ikramul Haq, “When VAT ceases to be VAT—III: Rebuilding the invoice-credit chain,” Minute Mirror, 27 August 2026. Read with the earlier programme in Huzaima Bukhari and Dr. Ikramul Haq, Towards Broad, Flat, Low-rate and Predictable Taxes, third edition, PRIME (2024). The proposals in this instalment develop the institutional design; they are not descriptions of an existing national authority.
5. Constitution, Article 160(3A)–(3B). The protected share is that of the provinces collectively; the provision does not freeze each province’s individual horizontal allocation.
6. Constitution, Article 140A. The transfer schedules, service obligations and accountability arrangements advocated here are policy proposals for implementing devolution.
7. Department of Finance Canada, Equalization Program, explanation of purpose and fiscal-capacity assessment. The distinction between capacity equalisation, household-income inequality and infrastructure investment is central to the proposed Pakistani design.

[To be Continued]

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.