With only weeks to go before the historic 7th National Finance Commission award is set to expire, the government finally asked the president to start the process whereby the 8th award could be negotiated. The summary asking president to constitute the 8th NFC award went out on April 1.

Soon representatives from the federation and the four provinces will be sitting down together to renegotiate the formula that will govern provincial and federal shares of government tax collections. The process might have begun sooner, but one province — Sindh — took almost two months to nominate its representative. On March 31, the provincial government finally decided on Salim Mandviwalla as its representative. Other provinces have nominated Ayesha Ghous Pasha from Punjab, Prof M. Ibrahim Khan from Khyber Pakhtunkhwa and Kaisar Bengali from Balochistan. Additionally, the finance ministers of each province will also participate.

Dawn spoke with Mr Mandviwalla about the whole process.

Q. Why was there such a long delay on the part of Sindh to nominate a member for the 8th NFC award?

A. We should have had Kaiser Bengali as our representative since he performed the duty last year. But he had left his position in Sindh to take up another assignment in Balochistan. For that reason we had a gap in appointing a new person. The party wanted to have someone who is both a political person as well as a technocrat as a member. They also felt that in the last position they were not able to achieve all that they wanted to achieve for Sindh. As I used to head the commission myself at one time, and working between the federal and provincial government is something I am aware of, the party finally decided that I should be nominated for the position. These are the only reasons I am aware of for the delay on the part of Sindh to nominate a member. Let me also add that it has been two months today since we sent our nomination to the federal government, but now it is they who are delaying starting the process and we don’t understand why this is the case. We have been in touch with them regarding this, but no substantive reasons have been given. We have also sent some reminders. We hope the process will now start without any further delays.

Q. What lessons have you learned from the previous award, and your experience in implementing it?

A. We have to look at the reality of every province carefully. The resources being contributed to the federal government by Sindh have been overlooked in the last award; smaller provinces have been overlooked. This is particularly the case regarding oil and gas, but all other resources too. Another very serious issue is that a new sales tax has been imposed and is being collected directly on transactions that belong to the provinces. Five per cent sales tax on goods has been levied which is actually being collected on services. As a result, there is duplication of tax collection taking place, where we are collecting a tax on these transactions because we consider them to be a service, and the federal government is collecting a tax on it because they define it as a good. We need to better define the difference between services and goods in the next award.

Q. There is a view that the provinces did not keep up with their end of the bargain in the last NFC award, which devolved very large shares of the federal divisible pool to them. Their end of the bargain was that they would accelerate their revenue effort. What do you make of this view?

A. Sindh is number one in revenue generation. Just look at the numbers. We had a target of Rs42bn of own revenue in our last budget for the provincial government, and we have already crossed that. We are the only province that has done it, surpassed its own revenue generation target. As far as Sindh revenue targets are concerned, they are better than the budget. So the implied criticism of the provincial revenue effort in the view you just outlined does not apply to Sindh.

Q. Will you be seeking to adjust any of the weightages that were assigned to various criteria in the previous award?

A. We will surely seek a change in the weightages. We will have to address the population weightage, which were set in 1974 — Punjab was 60.25 per cent of the total population, Sindh 22.5 per cent, NWFP 12.39 per cent, Balochistan was 3.36 per cent. However, today Punjab is 51.74 per cent, Sindh is 24.55 per cent, NWFP (now KP) 14.62 per cent, Balochistan 9.09 per cent. Balochistan was removed from the population weightage in the last award for good reason, and other weightages given to other criteria for them. Importantly, this time we also want to include major cities as a criteria also, which has not been addressed in past awards, and give due weightage to this as well.

Published in Dawn, April 12th, 2015

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