ISLAMABAD: The Cen­tre appears to be turning the wheel backwards in asking the four provinces to give up three per cent of divisible pool taxes under the next National Finance Commis­sion (NFC) Award to be redirected towards additional security requirements.

This was the moot point of the second NFC meeting in 20 months that has set the stage for future talks with provinces advocating a greater share in national taxes.

Their claim comes from the need to finance additional responsibilities after devolution under the 18th Amendment.

Finance Minister Ishaq Dar presided over the meeting on Monday in the absence of three provincial finance ministers and promised to ensure that next year’s budget would be based on a new NFC Award.

“We have proposed a National Security Fund to meet security expenditures and allocate 3pc of divisible pool taxes” (for the new fund), Mr Dar told journalists after the meeting.

He said further discussions on the subject would take place in the next NFC meeting scheduled for the third week of December, after which the decisions will be conveyed to the public.

The previous NFC Award, signed in 2009, expired on June 30, 2015 and has continued to remain effective through presidential extension. At present, the Centre transfers 57.5pc of the divisible pool to the provinces after deducting collection charges and retains 42.5pc. Of the provincial share, 82pc is distributed on the basis of population, 10.3pc on the basis of poverty, 5pc for revenue collection and 2.7pc inverse population density (area).

Responding to a question, the minister said the federal government could not reduce provincial shares in the net proceeds of divisible pool taxes but could find new ways to share national responsibilities.

“We will discuss how to create fiscal space for national security and other requirements of the federal government”, he said, iterating the desire of the PML-N government and its multilateral lending partners to “rebalance” the existing tilt towards provinces under the 7th NFC Award.

He explained that the government had already created 28 additional armed wings to provide security to the China-Pakistan Economic Corridor (CPEC) and would need to add another 29 for its remaining portions and some other security responsibilities. He said he would try to play the role of a neutral umpire between the federation and federating units to resolve complaints through dialogue.

Dr Ayesha Ghaus-Pasha, the Punjab finance minister, was the only provincial finance minister present at the meeting. The other three provinces were represented by non-statutory members and finance secretaries.

The provinces, on the other hand, demanded a further increase in their 57.5pc share to meet additional expenses incurred in connection with sustainable development goals and vertical programmes devolved to provinces.

KPK’s technical member Professor Muhammad Ibrahim Khan complained that the 82pc weightage for population was too high and demanded that it be reduced to 60pc. He said that KPK’s share, on account of compensation for losses caused by the war against terrorism, should be increased from 1pc to 5pc. He said the Centre’s responsibilities had reduced after the 18th Amendment. This makes a serious case for transfer of more resources to the provinces, he said.

Dr Kaiser Bengali, Balochistan’s technical member, hoped that the new NFC Award would be finalised soon. He said the Centre and provinces were walking a tight rope and there was little space to accommodate each other’s fresh demands.

Senator Saleem Mandviwalla, the technical member from Sindh, hoped that the next fiscal budget would be finalised on the basis of the new NFC Award. He said if the 3pc National Security Fund requirement was genuine, the provinces should agree to it.

Informed sources said that Sindh was seeking a fixed financial share of the five per cent total divisible pool resources for security expenditure as long as it was hosting the Rangers operation.

Mandviwalla also demanded that 5pc federal excise duty be imposed on crude oil. He said the Centre should give provinces the right to collect general sales tax on goods because of the better performance of provincial revenue authorities.

The next meeting, he said, would prepare the macroeconomic framework and budget strategy for the next fiscal year.

Published in Dawn, November 29th, 2016