In line with spirit of the 18th Amendment to the Constitution of Pakistan the collection of provincial sales tax on services was devolved to the provinces and revenue authorities were established in all four provinces. The devolution of sales tax on services was made with the prime objective for provinces to raise own source revenue and, thus raise a bigger pool of resource that can be spent on delivering services. The revenue authorities across all provinces have made decent contributions to provincial revenues by capturing early gains – in the last 4 years the provincial tax collection have increased to 10% of the total tax collection, while the provincial contribution to national non-tax revcenue is 20%. However, the revenue growth beyond these early gains have stalled and the tax base has stagnated – the provincial tax collection as a percentage of GDP has wandered around at 1%. While this phenomenon is analogous to the situation faced by Federal Board of Revenue, there is one major difference. The provincial tax authorities are fairly young institutions and hence face lesser institutional rigidities and resistance to change and innovation. Given the newness of provincial tax authorities they have space to be more innovative, flexible and efficient. The provincial government’s need to capitalize on this opportunity by reforming, modernizing and strengthening their tax authorities for better tax collection. Punjab is the largest province of Pakistan and contributes almost 54.5% to the national economy. Moreover, Punjab’s economic structure is dominated by the services economy which produces 63% of the value-added. Punjab also houses 70-75% of the 5 million plus SMEs in the country where majority of these businesses are linked to the services economy. Despite this huge size of the services sector, the number of tax-payers registered with Punjab Revenue Authority (PRA) are just 84,000 and the revenue collection is approximately PKR 120 billion. The importance of provincial taxes cannot be overemphasized. The Punjab Growth Strategy 2023 estimates that the provincial own source revenue needs to grow a rate greater than 17% per annum till 2023 for the province to meet its future investments to achieve a higher economic growth rate and meet its development targets. Most of this growth will have to come from provincial Sales Tax on Services. The role of raising provincial own source revenue is the foundation required to provide better quality and sustainable services to citizens. There is substantial evidence that shows a strong correlation between local revenue and sustainable socio-economic development. The provincial governments face substantial resource shortfalls to invest adequately for meeting SDGs and other addressing other challenges such as Climate Change. The capabilities to raise own source revenues and link them to service delivery targets is crucial if the provinces are to make meaningful progress towards these objectives. Several international agencies such as the Foreign Commonwealth and Development Office (FCDO) and the World Bank are working with provincial governments and the federal government to help them build stronger and sustainable tax institutions and systems by making strategic and catalytic investments that offer larger gains on investments. They are working with the multiple provincial governments to support them increase the tax-base, improve compliance and also create a more enabling environment for the tax payers. It is important to highlight that successful tax reforms and tax policy measures are those that substantially reduce the tax-payers cost of compliance and makes it easier and transparent to pay taxes. PRA in Punjab has been one of the most progressive agency and under its senior leadership has implemented huge modernization efforts that has not only helped in increasing the revenue but has also facilitated the tax payers. An example of PRA’s success has been its superb performance during the pandemic. Under the RISE Strategy of the Punjab Government, the economic stimulus package included substantial tax rebates on services and certain services were made zero rated. Despite these reliefs PRA was able to outperform the set targets. Sub-National Governance (SNG) is a programme funded by Foreign Common & Development Office (FCDO) . SNG works closely with key government departments on a sustainable reform agenda supporting Governance, Planning, Public Financial Management and Taxation. One of the key features under SNG is its Innovation Challenge Fund that seeks to make small catalytic investments in innovative ideas that allow public sector to main stream sustainable reforms that otherwise in routine manner will not be possible. Sustainable innovation can only happen under a set enabling circumstances and public sector lacks to create these. Innovation requires ‘free thinking space’, ‘collaboration’, ‘technical and knowledge capability’ and ‘resources” to pilot and knit all stakeholders towards a common objective. The SNG Innovation fund is designed to offer this and works as an internal reform and change within main stream public sector. Given the importance of provincial taxation, SNG has worked closely with PRA to design a key innovation that is incline with the efforts to make PRA a modern facilitative and effective tax authority. SNG is implementing a high-tech yet home grown initiative with PRA that is designed to use intelligent data analytics and integration of existing data bases available within the public sector such as property taxation, motor vehicle registration, social security data and similar other data sets to identify new tax payers and implement a SMART Audit regime. The system is using Artificial Intelligence and Machine Learning on data patterns and tax-payers information to identify anomalies that warrant exploration for tax compliance. The project in its very early days through data analytics have identified between two-three thousand new potential tax payers for PRA. The potential from such an intervention is substantial and PRA is looking to increase the tax-base by 100% over the next 3-5 years with the effective use of technology and intelligent data analysis. Moreover, the initiative involves a strong emphasis on reading and understanding the needs and behaviors of tax-payers and will help PRA use creative messaging often referred to as ‘nudges’ to improve voluntary compliance. Finally, the essence of innovation is its adaptability, scalability and replicability. Adaptive ICT to a large extent addresses the issue of replicability, for example, in case of SNG Intervention with PRA on provincial taxation, the system is completely adaptable in other provinces as the structures and requirement do not differ. The real strength of these innovative interventions is their interoperability leading to a more integrated and transparent system. This will also help in better integration of information and data and thus will support a stronger evidence based approach for not just increasing tax revenues but formulating a private sector enabling and a growth oriented tax policy – a missing link in previous interventions. The adaptability however, has to be managed, as political economy of change is always an uphill task and internal and external power structures of institutions often block some of the most innovative and practical reforms. However, in case of provincial tax authorities, these are still developing their culture and grappling with setting the bars on service delivery standards and thus offer the greatest opportunity to adapt these innovative and enabling reforms. The SNG initiatives on innovation are designed on open principals of sharing its learnings, data and collaborate with any public sector entity working towards similar objectives. It is hoped that this innovation and modernization initiate by SNG in partnership with PRA will not only help Punjab raise its revenue for better services but will provide evidence, knowledge and know-how for other provinces to learn and replicate for sustainable development of our common future. The writer is a social and economic policy expert and innovation lead at SNG