ISLAMABAD: With 7th National Finance Commission award expiring on June 30, the government has formally moved a summary for its extension to the next financial year to provide a legal cover to provincial shares set aside in the federal budget for 2015-16.

A senior finance ministry official confirmed that the summary had been sent to the president through the Prime Minister’s Office seeking “extension of the existing award for another year or till conclusion of the next award, whichever is earlier”.

He said the provinces had been informed about their next year’s shares set in the federal budget and approved by parliament, adding that the provinces had made their budget on the basis of the previous award.

The official said it was an established norm that the existing financial arrangement had to be in place till a new one was announced and notified. “The previous NFC award expires on June 30 and a new presidential order will be issued well in time,” he said.

Sindh’s private member in the NFC recently told journalists that extension of the existing award required consent of at least three provinces. Sindh Chief Minister Qaim Ali Shah had earlier asked Prime Minister Nawaz Sharif to extend the 7th award for only three months and ensure finalisation of the 9th NFC award before Sept 30 this year.

Finance ministry officials said the summary explained in detail why the presidential order was required to extend the 7th award for another year. It said the reconstituted NFC had, in its first meeting, constituted five committees which would take time to complete their deliberations. It is, therefore, a constitutional requirement to extend the previous award for distribution of divisible pool taxes till a consensus is developed on the new award.

The officials said it was in the interest of all stakeholders, notwithstanding their political statements, to continue with the previous arrangements for a full year, instead of indulging in fresh budgetary exercises in the middle of the year.

Under the present (7th NFC) award (2009) which is operative, financial autonomy of the provinces has been strengthened by increasing their share in the divisible pool (taxes) from 50 per cent to 56pc in the fiscal year 2010-11 and to 57.5pc from 2011-12 onwards.

The 8th NFC was constituted on July 21, 2010, but it did not give any award. The 9th NFC was constituted on April 24 this year and it held its first meeting on April 28. It had decided to constitute four working groups to undertake thematic studies and submit their recommendations to the commission.

“The present award will remain operative till the 9th NFC award is implemented,” according to the official record. As such, provincial shares in the divisible pool were worked out in the federal budget for 2015-16 in accordance with the 7th award.

For the first time in the country’s history, the 7th award adopted multiple indicators for distribution of provincial shares. In all previous awards, population remained the sole criterion for distribution of shares with special grants (subventions) to smaller provinces.

The 7th award also recognised the requirements of Balochistan and increased its share in the divisible pool to Rs83 billion in the fiscal year 2010-11 which was more than double the actual share set for the fiscal year 2009-10. An amount of Rs67bn has so far been released.

At the first meeting of the 9th NFC in April, the provinces unanimously demanded higher share from the divisible pool while the centre called for jointly sharing the responsibility of war on terror, natural disasters and needs of special areas like the state of Azad Jammu and Kashmir, Gilgit-Baltistan and Federally Administered Tribal Areas (Fata).

On the horizontal level, Balochistan has set the tone for discussions on increasing the weight of population density by reducing population factor for distributing taxes among the provinces, while the largest province Punjab has made it clear that it should not be expected to render more sacrifices.

In the run-up to the finalisation of budgets over the past two months, the centre and the provinces had also been fighting over the issue of transfer of responsibilities like health and education to the provinces and who should fund them.

“The constitution is very clear that the president has to extend the existing award till a fresh consensus is achieved,” Finance Secretary Waqar Masood Khan told journalists recently.

The centre and the provinces have already agreed not to spend their due shares of federal divisible pool to jointly limit the country’s consolidated fiscal deficit and meet the requirements of the International Monetary Fund.

During the outgoing fiscal year, the provinces are reported to have surrendered around one per cent of GDP or Rs300bn to the centre to keep the fiscal deficit within the limits set by the IMF.

Published in Dawn, June 29th, 2015

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