KARACHI, Feb 15: Despite its positive demand for the formation of a new National Finance Commission, it appears that the Sindh Assembly’s proposals might be in conflict with the provisions of Articles 160 and 161 of the Constitution.

On Jan 28, the Sindh Assembly had rejected the existing award and demanded constitution of a new National Finance Commission to give a fresh award, based on revenue-generation and not on the basis of population.

The resolution, which was jointly tabled by the treasury benches and the opposition, reflected the general perception that the Centre has denied Sindh its due share in resources and that the federal government is taking away a much bigger slice than it deserved and doled out very little to the provinces.

Tactically speaking, Sindh has managed to strike common ground with the other two smaller provinces on the NFC and many other issues, but by resolving to make the settled constitutional rights of the two smaller provinces negotiable, the resolution has created a lot of concern.

At the same time, Punjab can now further isolate Sindh by claiming to be defender of the rights of Balochistan and the NWFP. Balochistan has already expressed serious reservations against Sindh on the water issue. The later is also siding with the Punjab on the water issue.

The resolution, which has already been questioned by the NWFP chapter of the People’s Party Parliamentarians, puts severe restraints on future representatives in the NFC from Sindh, who will be obliged to work within the parameters laid down by the resolution.

The resolution can be termed violative of Article 160 (4) of the Constitution, which lays down that the share as allocated to each province in accordance with the recommendations of the National Finance Commission “shall be paid to the Government of the Province concerned”.

Article 160 (3) stipulates that the taxes to be shared will be raised under the authority of parliament. The resolution proposes a system which makes collection and distribution of federal taxes the other way round.

The Sindh Assembly had called upon the provincial government to approach the federal government to constitute a new NFC for the distribution of the gross proceeds of the divisible pool between the federation and the provinces for a period of five years with effect from July 1, 2003.

According to the proposed formula, the federal government shall maintain accounts of the gross divisible pool taxes that include general sales tax on services and such taxes as collected from each province, specified under para-3 of the Distribution of Revenues and Grants-in-aid Order 1997”.

In fact, the resolution can be termed violative of the entire Article 161, whereby straight transfers to the provinces have been made subject to a review after five years. The provisions laid down in sub-articles (1) and (2) of article 161 are very sensitive and the NWFP and Balochistan are already indicating their serious reservations.

Even from a narrow provincial view, the recommendation does not make sense since Sindh has been receiving royalty and excise duty on gas as also on crude oil produced in the province as straight transfers.

General sales tax on services is a provincial subject. The NFC-91 had recommended that the GST on sales and purchase of goods (item No 49. of the Federal Legislative List) be also made a provincial subject by amending the Federal Legislative List. The same recommendation was made in the agreement signed by the representatives of the four provinces in the NFC constituted in April 1996.

Apparently the resolution offers to surrender GST on services to the federation, to the disadvantage of the province. Why should GST on services be even mentioned, this being a part of the residuary subjects and being fully in the provincial domain?

Generally provinces do not lend or borrow from other provinces. Loans are secured against the provincial consolidated funds and are taken from the State Bank. The provinces also raise loans from the public, but with the permission of the State Bank and the federation. The federation, too, borrows but within the limits of the federal consolidated fund. Articles 78, 166 and 167 are relevant in this regard.

Any borrowing or lending outside the provisions of these articles, as proposed in the Sindh Assembly resolution, would be violative of the Constitution. In effect, the resolution practically does away with the federal consolidated fund.

The NFC, constituted in 1995, had expressed serious reservations on the five per cent collection charges deducted by the federation.

The resolution is too generous in accepting this provision, specially when it undertakes collection of taxes at the provincial level. If it is serious in collecting federal taxes through the provincial setup, whatever collection charges are agreed upon should be added to the provincial share instead of vice-versa.

The divisible pool of NFC 91 consisted of income tax, sales tax and excise duties on tobacco and sugar. This pool was divided between the federation and the provinces in a ratio of 20:80. Further sub-division between the provinces of the total provincial allocation was on the basis of population of the four provinces.

The IMF-inspired concept of a “National Tax Pool” was introduced when the President in October 96 arbitrarily chose to make changes through a letter which was not signed by anybody.

The reason was that while taxes in the divisible pool were increasing at the rates of 28 per cent (income tax, sales tax), the main taxes directly credited to the federation were increasing at merely 14 per cent.

Due to further IMF controls and pressures for bringing down tariffs, which the presidency was supporting, it was feared that there may be a negative growth in custom duties.

By adopting its resolution, the Sindh Assembly has accepted the concept of the “National Tax Pool”, which is suicidal for all provinces, specially Sindh.

No matter where the federation agrees to keep the level of the provincial share, the net revenue passed on to the provinces will continue to decline compared to the divisible pool formula adopted in NFC 91.

This is a very big reversal which the esteemed assembly has chosen to recommend on its own.

Sindh has always opposed the arrangement of keeping population as the sole criterion for resource distribution. In the agreement of the four provinces of April 1996, it was agreed that the provinces would be free to propose their own resource distribution formula.

Sindh, NWFP and Balochistan evolved their joint formula, which reduced the population weightage and gave weightage to other factors, like collection, production, area, backwardness and population control. Had NFC 95 not been dissolved, this formula would have accommodated the point of view of the largest province.

All these factors have apparently been ignored by the provincial assembly, which has retracted from the just and logical stand always taken by the province.

Be it contribution to the federation or distribution by the federation, the provincial assembly has now accepted population as the sole criterion in its resolution.

This will surely be thrown back at us. Where was the need to abandon a just and logical stand, which could have easily been accepted with the support of other smaller provinces.