Despite having a turbulent constitutional history that is replete with experimenting with different forms, methods and doctrines of government, one on which there has been a consensus is “Pakistan’s federal structure of government with defined legislative powers at federal and provincial level”.
An important pre-requisite for effective functioning of the federal structure is the framework of distribution of fiscal powers and the manner in which the revenues are collected and distributed between the federation and the provinces. Thus, revenue distribution is an extremely sensitive and critical factor for the long-term sustainability of a country having a federal system.
For obvious reasons, this issue has always remained a thorny affair and has been a cause of much discord, bitterness and acrimony between the federation and the provinces. More specifically, the unfair distributions resulting in the paltry revenue flows to the smaller provinces in the past had generated considerable animosity. Further, such distributions that were aimed at keeping the bulk of the kitty with the federal government also resulted in wasteful and reckless spending of resources.
Historically, the system of revenue distribution has evolved from the pre-Independence arrangement that prevailed under the framework of the Government of India Act, 1935. The first revenue sharing award under the 1935 Act, was the Niemer Award of 1937. The most important aspect of the pre-independence revenue sharing arrangement, which was unfortunately revised after independence, was the issue of Sales Tax that was then a provincial tax. After independence, the revenue sharing award called the Raisman Award of 1951, was notified on April 1, 1952 in which Sales Tax, hitherto a provincial tax, was temporarily handed over to the Centre, subject to allocation of 50 per cent of proceeds to the provinces. Unfortunately, this temporary period has still not ended as the Sales Tax continues to be a federal subject.
After the 1951 award, there were three NFC awards of 1961, 1964 and 1970. All of these were given in unusual circumstances. The first two awards were during the period of one unit, when the existing provinces formed part of West Pakistan and the later award was given during the second martial law and a year before East Pakistan seceded. One reason for this secession was also their resentment on the revenue distributions of the past.
1973 Constitution: Article 160 of the Constitution of the Islamic Republic of Pakistan provides the framework of the National Finance Commission (NFC), a constitutional body, which is required to make recommendations to the President on the formula of distribution of federal revenues between the federation and the provinces every five years. The Commission, is headed by the federal finance minister, and includes finance ministers of all the four provinces as its members and such other persons, as may be appointed by the President after consultation with the provincial governors. The scope and the terms of reference of the Commission are determined by the President, which in other words means the federal government.
In a country which took over a quarter century to get its first constitution passed from an elected parliament, and in a period of barely five years relegated the same constitution (that had been adopted unanimously by the parliament), to the status of prolonged suspension under the proverbially famous “doctrine of state necessity”, it is not surprising that this part of the constitution has been as ineffectual as the constitution itself. Consequently, we have had only three NFC awards during the last 29 years after the 1973 constitution, viz. the awards of 1974, 1990 and 1996.
Interestingly, most of the revenue sharing awards between the federation and the provinces have been finalized during unrepresentative regimes, with the exception of 1974 and 1990 awards. Consistent with our history, all important decisions such as the system of democracy at gross roots level through devolution of power to the districts and union councils, redistribution of powers between the federation, provinces and districts and the sharing of revenues between these three tiers of government plus a whole range of constitutional amendments are being worked out under the current dispensation, when significant part of the constitution has been put in abeyance. Accordingly, the President has thought it proper to constitute a National Finance Commission, comprising of non-elected people, which is required to complete its recommendations by the end of this fiscal year (being the 5th and the last year of the 1996 NFC period) so that the revenue sharing from the ensuing year could be based on the new award. A strong argument of the supporters of the present setup is that such an important task can not be left to the lesser mortals (public representatives).
In the following paragraphs, I have discussed some critical issues and implications of the last two NFC award (1990 and 1996 award), focusing more particularly on the financial difficulties of the province of Sindh resulting from these awards, to provide some insights with the hope that new award may be framed on more equitable basis in the interest of achieving a durable and sustainable federal structure.
Basically, there have been three major distortions in the past awards, which need to be corrected Firstly, all these awards were designed with the intent to retain bulk of the resources with the federal government. A primary reason for this has been our culture that creates and encourages concentration of financial and administrative powers and resources to whoever is at the helm. The other reason is the enhanced requirements for defence and debt resourcing. The biggest victim of this lopsided arrangement has been the criminal neglect of Pakistan’s social sectors such as education, health, agriculture, public health and sanitation, environment, population welfare that fall in the domain of the provincial governments. Consequently, this is also a major cause of the country’s backwardness, as through large allocations to the federal government, greater part of such resources have been spent on unproductive expenditure. I sincerely believe that the country’s economic development is not possible without enhancing both, the share of provincial resources to be spent on the above sectors and strengthening the administrative capacity of the provincial governments.