PROVINCES are seeking a greater role in sales tax collection to trim dependence on uncertain and delayed federal resource transfers that, they say, compromises their capacity to achieve their socio-economic targets.

Expressing discomfort with the existing resource sharing arrangement, the economic hierarchy in Islamabad says it accommodates provinces at the cost of the federal government. They criticise sub-efficient utilisation of resources at the provincial level and dismiss the ‘delay in transfers excuse’ advanced for poor performance.

“Let’s judge provincial governments’ performance keeping in view the scale of new resources at their disposal now. It is not uniform across all provinces with smaller provinces lagging behind but the markers of health and education on social index have not improved sufficiently and in some cases (Sindh and Balochistan) these have even deteriorated”, remarked a senior member of Finance Minister Dar’s team.

“It is unfair but easy to blame others for own mistakes. Instead of trying to politicise the issue, the provincial governments need to build capacities to plug leakages, strive for optimal utilisation of resources, and improve the quality of life of people”, he added.

The federal transfers to the provincial governments have persistently been increasing since 2010, the year when the landmark seventh NFC award was signed.

In his Budget 2016-17 proposals, being debated in the National Assembly, the earmarked share of the provinces is up 15.3pc to Rs2,136bn from last year.

In his budget speech Finance Minister Ishaq Dar said “The gross revenue receipts for 2016-17 are estimated at Rs4,915bn against Rs4,332bn for 2015-16. The share of provincial governments, out of these taxes, will be Rs2136bn. Punjab stands to get Rs1,045bn, Sindh Rs547bn, KP Rs346.1bn (including 1pc for war on terror) and Balochistan Rs196.8bn in the new fiscal year of 2016-17”.

“The federal government recognises that the provincial governments have increased social responsibilities, and the federation is constantly raising the level of provincial transfers to enable them to improve the social services and law and order”, he added.

Some senior bureaucrats reached on the phone in Sindh articulated their position better than their counterparts in the other three provinces. Members of Dr Ayesha Ghaus’ team in Punjab were nervous and declined to share their opinion on the issue even informally, while members of KP and Balochistan financial team hierarchy were high in verbosity but low in content.

“The provincial finance teams are summoned to Islamabad every few months to be informed of under-performance of the FBR and the resultant squeeze on the targeted provincial shares. As the recurring expenditures are inflexible, the axe, inevitably falls on provincial development spending”, a key member of the Sindh government engaged in the budget exercise remarked over phone.

Commenting on the delay in the dispersal of funds by the federal government he said, “Out of Rs494bn revised share of Sindh, 20 days before the close of the current fiscal on June 30, Rs382bn have been transferred, with Rs112bn still outstanding”.

He said by efficiently managing the sales tax on services Sindh and Punjab have rebuffed baseless notions regarding the capacity of the provinces to handle the challenge. In the eighth NFC award “we intend to push for further fiscal decentralisation as heavy dependence of 80pc and above on federal transfers do not bode well for economic management at sub-federal level.

“In the other two provinces, the situation is tougher but the tax collection machinery is evolving and will certainly perform better than the federal set-up”, he argued.

KP Finance Minister Muzaffar Saeed was candid in his conversation on the phone. He was critical of centralisation that, he said, strengthened centripetal trends in federating units. Making a case for increasing KP’s share and higher transfers to the province, he said, his province took the brunt of terrorism that has left the infrastructure in a shambles and scared investors away despite the province’s rich resource base. “We need more resources to kick-start the provincial economy”.

With many members of the provincial ministry of finance nabbed for corruption recently and others interrogated for suspected links, officers in Balochistan were both scared and preoccupied with more pressing issues to entertain queries of journalists.

The provinces agreed on the formula for sharing the divisible pool under the seventh NFC award that assigns 82pc weight to population, 10.3pc to poverty and backwardness, 5pc to revenue collection/generation and 2.7pc for inverse population density. One per cent of the net proceeds of the divisible pool is assigned to KP to meet the expenses of the war on terror.

Under the award, the federal government had agreed to increase the province’s share of federal tax revenues from 46.5pc to 57.5pc. In conjunction with economic growth and inflation, the collective share of four provinces increased from Rs677bn in FY2010 to proposed Rs2.1tr for fiscal 2016-17.

Published in Dawn, Business & Finance weekly, June 13th, 2016