ISLAMABAD:
Planning Minister Ahsan Iqbal conceded on Thursday that the provincial National Finance Commission (NFC) share of 57.5% was untouchable due to reservations by the federating units, as Punjab’s readiness to share defence spending failed to win support from the other provinces.
The concluding session of the two-day Pakistan Governance Conference revealed the positions of the four provinces and the Centre on the next NFC award. It emerged that Khyber-Pakhtunkhwa and Sindh held almost similar positions, while Punjab appeared to be toeing the Centre’s line.
The federal government seemed willing to concede to ground realities, but its view on making the special areas and Islamabad part of the NFC was backed by the provincial governments. The conference was organised by the planning ministry. The change in the resource distribution formula between the Centre and the federating units is untouchable due to reservations by the provinces, but separate allocations should be made for Azad Jammu & Kashmir, Gilgit-Baltistan and the Islamabad Capital Territory, said Iqbal.
AJK and G-B are de facto parts of Pakistan, the planning minister added, and separate allocations for these territories in the next award could save the federal government Rs500 billion annually. The NFC can lay down grants for G-B, AJK and the ICT without amending the Constitution, said Musharraf Rasool, the technical member of the NFC from K-P.
Punjab advocated sharing the federal government’s burden on account of debt and defence spending – the two components that will consume Rs11 trillion this year out of a total budget of around Rs18 trillion.
Debt and defence are real issues, and the Centre and the provinces should work together to address them, said Punjab Senior Minister Mariyam Aurangzeb, in a statement suggesting the province’s willingness to share the burden.
Aurangzeb emphasised the need to share defence spending three times during her roughly five-minute virtual address to the session.
However, the other three provinces stayed silent on expenditure sharing. Instead, Sindh Finance Secretary Fayaz Jatoi said the new NFC should be finalised while remaining within the constitutional scheme.
Jatoi said the current NFC was not sustainable for either the Centre or the provinces, but the solution must lie within the Constitution.
If the divisible pool share of the provinces is reduced, what is the guarantee that the federal government would not waste the additional funds, asked Muzzammil Aslam, Finance Adviser to the K-P chief minister.
The NFC discussion is narrowly focused on sharing expenditure responsibilities, ignoring the need to increase the overall size of the pie, representatives of the Sindh and K-P governments said.
The positions of K-P and Sindh were aligned, as both federating units recommended enhancing the revenue pool, making allocations for human development and climate resilience, and making provinces partners in federal tax collection.
FBR exposed again
Revenue collection has fallen short of commitments under the NFC by a staggering Rs63 trillion, claimed the technical member of the NFC from K-P, Musharraf Rasool Cyan.
In 2010, it was agreed that the Centre’s tax-to-GDP ratio would be raised to 15% by 2015, but even after 15 years it remains at earlier levels. Sindh’s finance secretary said that against an estimated Rs11 trillion sales tax potential on goods, the Federal Board of Revenue collected barely 15% last fiscal year.
K-P demanded that the federal government share income tax and sales tax collection management with the provinces, which have performed far better than the FBR. Since 2010, FBR revenues have increased by 81%, compared with 266% in Punjab, 352% in Sindh, 369% in K-P and 638% in Balochistan, said Rasool.
The next NFC award should be finalised through the lens of macroeconomic sustainability, said Dr Nadeem Javaid, Vice Chancellor of the Pakistan Institute of Development Economics. The federal government’s debt has increased due to its failure to collect taxes in line with commitments made under the 7th NFC and the absence of growth in non-debt-creating foreign inflows, said Muzzammil Aslam, Finance Adviser to the K-P chief minister.
The federal government must raise revenues and stop spending on areas devolved to the provinces, KP’s finance adviser said, criticising the Centre for announcing a Rs38 billion Ramazan relief package despite social safety being a provincial subject. Rasool said the 7th NFC remained in violation of the Constitution until K-P’s share was increased following the merger of the tribal areas, adding that K-P had received Rs1.8 trillion less than its due share after the merger.
Aslam said the current NFC formula incentivised higher poverty and population growth, as provinces received more revenues when poverty and population figures were higher. President Asif Ali Zardari has constituted the 11th NFC, which held a meeting in December. A tentative date for a second meeting before January 13 was missed due to incomplete work by two NFC sub-groups.
