21 January 2004	Wednesday	28 Ziqa'ad 1424

KARACHI, Jan 20: A study sponsored by the World Bank found that all the previous national finance commissions functioned "less by consensus than by the federal government's power to prevail over the provinces".

One wonders how would the author of this study judge the functioning of the current NFC that held its third round of deliberations in Islamabad on Monday where finance ministers of all the four provinces in a press conference with Federal Finance Minister Shaukat Aziz claimed to have inched towards a "consensus".

Why don't the finance ministers of all the provinces brief reporters of their respective provinces on these NFC deliberations and also on current financial and budgetary position.

Syed Sardar Ahmad, Finance Minister of Sindh and a retired bureaucrat, had announced in June to make a monthly performance review of the budget he had presented. He had not briefed reporters about the performance in last seven months.

The first consensus reached on Monday is on the equal distribution on 50:50 basis of Rs176 billion divisible pool of taxes between the federation and the provinces. There also appears to be a consensus that population would not be the single criterion for distribution of Rs83 billion between the four provinces. This pool will now be divided on the basis of population, backwardness and revenue generation capacity of the province.

"Don't go into percentages at this stage," Finance Minister Shaukat Aziz reportedly said on Monday, who obviously felt that weightages of each of the three criteria should be announced only after a consensus is reached. But the finance minister announced a verdict: "There would be no subvention pool, no federal government grants and the provinces would meet their expenses on their own."

The special subvention pool of Rs20 billion instituted in the previous NFC, which did not complete its work, and which is now completely disregarded by the present team of NFC negotiators from Sindh, was for the three provinces - Sindh, NWFP and Balochistan.

Since backwardness or poverty would be given weightage in distributing federal funds among the provinces, the billion rupees question is - what will be precise definition of this backwardness or poverty of the province or any part of the province?

The Social Policy and Development Centre (SPDC), a private research institution in Karachi, has carried out an exercise to give poverty rating to all the 106 districts of the country. It has found that Punjab and NWFP are the biggest beneficiaries of external as well as domestic remittances.

Sindh is the only province from where big amounts of resources are remitted to Punjab and NWFP because of the heavy influx of migrants who are working in the federal and provincial governments and also labourers.

Way back in 1986, Ghous Ali Shah, the blue-eyed boy of General Zia-ul-Haq and Sindh's Chief Minister, had sought authorization for his province to issue work permits to all the migratory labourers from Punjab and NWFP. In the very first speech of the Sindh Assembly as Sindh's chief executive Ghous Ali Shah made clear that migratory workers from Punjab and NWFP are a burden on provincial economy and a cause of law and order in his province.

Subsequent developments and deterioration of law and order in the province showed how prophetic he was. Since then Rangers' deployment have become a permanent feature of Sindh and a drag on limited finance of the province. How will the NFC compensate Sindh for huge expenditure on law and order which does not seem to come under control? It is a question that NFC award should answer.

The divisible pool now includes import duties, income tax, sales tax and excise. In 1996, import duties were included in the federal divisible pool under the concept of fiscal federalism. The import duties were not made part of this pool since 1973 till 1996 when this was the main revenue earner of the country and rates were high. But when under the diktat of the IMF and the World Bank, the government was forced to bring down these rates to a maximum limit of 25 per cent that is bound to come down further after Safta and other agreements come into operation, import duties were made part of the divisible pool.

Universally, sales tax is a provincial and a local government tax. The Sindh government has taken this stand when it announced its position for the current NFC. It is to be seen if Sindh takes this position or not.

The Sindh Assembly is the only legislature of Pakistan that unanimously took a position only last year that provinces should collect all the taxes and share it with the federation on the basis of their population. If a consensus award of the NFC was found to be a repeat of the previous NFCs then this resolution has the potential to become a rallying point for future politics of the country.