ISLAMABAD: Amid rene­wed tussle over sharing of resources, the Sindh government has accused the centre of encroaching upon the “constitutionally protected” provincial domain of taxes on services through the federal budget for 2015-16 and making arbitrary cuts in its share in divisible pool.

The spat comes at a time when the seventh National Finance Commission award, which expires on June 30, is likely to be extended by the president on the advice of the prime minister and the four provinces have sought an increase in their share in the divisible pool.

The Sindh government has lodged protest with the centre, saying the federal budget had taken measures “detrimental to provincial finances, severely affecting provincial receipts and next year’s budget”.

Take a look: Political economy of NFC

“The Finance Bill carries some measures which directly encroach upon the constitutional domain of the provinces under sales tax on services,” said Sindh Finance Minister Murad Ali Shah in a strongly-worded letter to the federal government.

Centre accused of encroaching upon provincial tax domain in budget

He accused the centre of violating the constitution by unilaterally withdrawing federal excise duty (FED) on six major services – banking, insurance services, franchise, telecom, non-banking financial institutions and restaurants.

The province also complained about a change in definition of services made through section 2, clause 33 (1)(d), of the Finance Bill and said it would “harm the provincial government’s efforts in levying sales tax on services”.

The clause states that in case of manufacture of goods belonging to another person, the transfer or delivery of such goods to the owner or to a person nominated by him should be deleted.

UPLIFT ALLOCATION: Murad Ali Shah said the Rs525 billion PSDP (Public Sector Development Progra­mme) for the outgoing fiscal year had an allocation of Rs14.47bn for projects in Sindh — a paltry 2.7 per cent of the total PSDP. Another Rs8bn was kept to beef up the existing allocation.

But a bigger disappointment for Sindh was that although the size of the PSDP had jumped to Rs700bn for the next fiscal, the province would get only Rs6.8bn for its projects —below one per cent of the total. The province wants it to be raised to at least the last year’s level of Rs14.47bn – a far cry as the federal budget enters the final approval phase.

CUTS IN SHARE: The Sindh government alleged that its share had been massively reduced unilaterally on account of divisible pool, straight transfers and gas development surcharge (GDS) during the current year. Allocations for the next financial year are even lower than the outgoing year.

Mr Shah said the federal government had communicated the revised estimate of Rs59.74bn for Sindh for the outgoing fiscal on account of straight transfers against the budgetary estimate of Rs82.62bn, showing a shortfall of around 28pc or Rs23bn.

Likewise, Rs61.5bn has been fixed as target for next year’s straight transfers, showing a reduction of over Rs21bn.

“Such a massive reduction in targets for the revised estimate for the current year and budgetary estimate for the next year has put the Sindh government in a precarious position,” he said, adding that the petroleum ministry had set the targets “without considering the previous trend in actual transfers” as was the case from 2011-12 to 2013-14. The provincial government demanded a revision in the targets based on previous trend and actual resource generation.

It said the GDS was a major receipt for the province where “huge cut has been communicated in the revised estimate”, despite continuous protest by the Sindh government over “the arbitrary role and decisions of the ECC on oil and gas matters”. This has been resulting in the reduction of GDS and the provincial government has neither been consulted nor shared any relevant data.

According to Mr Shah, the ECC initially allowed supply of gas to Engro Fertiliser at concessional rates from Mari gas field, instead of Qadirpur field, and then dismantled the gas price agreement with Mari Petroleum and issued policy guidelines to the Oil and Gas Regulatory Authority (Ogra) for tariff adjustment of Sui gas companies.

“These decisions have seriously affected provincial receipts under the GDS,” he said, adding that a summary moved in the Council of Common Interests was returned on “frivolous objections”.

He alleged that despite a commitment made on May 6 this year in Islamabad to share data within seven days, the federal government was still dilly-dallying on it, while Sindh’s GDS receipt had been drastically reduced by 46pc or Rs15bn. He said the next year would be no different as the GDS estimate had been reduced to Rs17bn from the current year’s budgetary estimate of Rs31bn. He said his province wanted these arbitrary price changes undone.

Mr Shah said Sindh’s demand for imposing excise duty on crude oil under Article 161(1)(b) of the Constitution had not been met, despite an agreement on draft amendments to relevant statutes.

“Excise duty on crude oil is a straight transfer and its non-imposition deprives the provinces of a legitimate constitutional levy,” he said.

Mr Shah said the finance ministry had communicated the revised estimate of Rs353.77bn for the current year on account of divisible pool share to Sindh, including Rs287.96bn it had received till May 31 this year and the remaining transfer of Rs65.81bn during June. But he regretted that the original budgetary estimate provided to Sindh promised Rs381.38bn, which meant Rs93.4bn was still outstanding.

“This shortfall will lead to severe financial crisis for the Sindh government,” he said.

Published in Dawn, June 15th, 2015

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