Investor Presentaiton
FINANCING SUSTAINABLE TOURISM IN KHYBER PAKHTUNKHWA
Executive Summary
The objective of this policy note is to give a
preliminary assessment of ring-fencing
revenue generated in the tourist areas of
Khyber Pakhtunkhwa (KP) for developing
specific tourism related infrastructure and
services to promote sustainable tourism in
these areas. This evaluation is done keeping in
view international best practices, recent
institutional changes governing tourism in KP
and existing revenue and expenditure systems
of the province. A stakeholder analysis, that
entailed a workshop and interviews with
relevant public and private sector players,
informs the analysis and helps outline some
preliminary findings and possible areas of
further research.
International best practices show that an
efficient and transparent mechanism of
tourism development and management is
through local governments. Tourism and
hospitality related taxes are collected at the
local, city or municipal level and are spent on
tourism infrastructure, marketing or for
environmental and conservation projects at
the local level. Other charges such as fees,
levies, tolls etc. are for specific services such as
entry charges to resorts, museums, parks etc.
The revenues collected are spent on the
maintenance, management, and improve-
ment of these tourism related services. This is
essentially what ring-fencing or hypothecation
of tourism tax revenue means.
Such earmarking of tax revenue for use in a
particular sector or a specific service is thought
to increase transparency and accountability of
a government with the taxpayers, creating
willingness to pay taxes particularly in countries
with low tax compliance. However, hypo-
thecation of taxes can lead to the loss of a
government's autonomy to allocate resources
according to its preferences and plans. Also, as
tax revenues are pro-cyclical, complete reliance
of a public good or service on one source of
revenue (strong hypothecation) can lead to
resource constraints in times of low economic
activity jeopardising the provision of that good
or service. Finally, as tax revenues are
dependent on the extent of economic activity
of a region, ear-marking these for use in that
region can create enclaves of prosperity
accentuating geographical income disparities.
While discussing the possibility of earmarking
tourism taxes for sustainable tourism develop-
ment in the context of KP, these issues need to
be kept in mind.
In Pakistan and in KP, tourism is a provincial
subject under the Khyber Pakhtunkhwa
Tourism and Culture Authority (KPCTA). The
KPCTA is an autonomous body with powers to
collect tourism levies, fee, fines etc. which go
into a tourism fund. The fund is supposed to be
used for tourism marketing, research,
development etc. One of the key tasks of KPCTA
is the establishment of independently
functioning Integrated Tourism Zones (ITZs).
The province also has development authorities
such as Galliyat Development Authority (GDA)
and Kaghan Development Authority (KDA) that
are autonomous and have development of
tourism as part of their administrative domain.
These authorities also collect a range of taxes,
fees, fines etc. and overlap in terms of
geographical and administrative jurisdiction
with KPCTA and proposed ITZs. Local bodies'
jurisdiction can also potentially overlap with
the Authorities, although currently these are
not functional or active. Overall, the tourism
administration and management system are
like a spaghetti bowl with multiple depart-
ments, overlapping jurisdictions, regulations,
and numerous taxes/levies.
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