ISLAMABAD: After failing to complete provincial nominations for months, the centre is expected to convene a meeting of the National Finance Commission (NFC) soon to consider extending revenue-sharing arrangement for another year beyond constitutionally protected five-year period.
Informed sources told Dawn that the Sindh government did not nominate its private member for the 8th five-year NFC despite repeated reminders by the ministry of finance. The NFC Secretariat has now moved a summary to the finance minister to convene a meeting of the existing NFC soon preferably in the first week of April to consider the way out. The constitutional life of the existing NFC is to automatically expire on June 30.
Except for Sindh, all other provinces have nominated their private members to the new NFC. They include Dr Aysha Ghous from Punjab, Prof Ibrahim of Jamat-i-Islami from Khyber Pakhtunkhwa and Dr Kaiser Bengali from Balochistan.
The previous NFC was constituted by the then president, Asif Ali Zardari, on July 24, 2009, that enabled a consensus 7th NFC award in about five months.
The 7th NFC award was signed by all the parties on Dec 30, 2009, in Gawadar and it took another few months in file work and formal notification that enabled its inclusion in federal and provincial budgets for fiscal year 2010-11 in June 2010 down the road.
Sindh fails to nominate member for the 8th NFC despite repeated requests
The new NFC has not been constituted as yet to meet constitutional requirements regarding consideration of financial arrangements between the centre and its federating partners and among the provinces and set shares in the divisible pool proceeds for next five years.
The process involves a lot of consultations, exchange of proposals and non-papers and series of negotiations to achieve the goal of a workable financial arrangement for five years.
Finance minister Ishaq Dar had announced in his budget speech in June last year to start consultations over the next NFC award in July and then assured the International Monetary Fund to have a fresh NFC arrangement, keeping in mind low provincial revenues and large cash surpluses, to ensure long-term fiscal sustainability.
An official said that all the provinces and the federal government would now have to reach consensus agreement to extend the existing NFC for another year through an act of parliament or through a presidential ordinance. Before that the existing NFC would have to pass a resolution for the extension.
The sources said the huge cash surpluses offered by the four provinces over the last five years under pressure from the federal government and the IMF to contain fiscal deficit has already exposed the lack of institutional spending capacity of the provinces to absorb their enhanced shares, mainly because of lack of planning and development capacity.
The federal government wants to build its case on the said premise and regain a part of the lost share in divisible pool.
The argument is that increased provincial shares were based on a major assurance that tax-to-GDP ratio would be increased to 15pc from less than 10pc by the NFC terminal year 2014-15 as provinces had promised to effectively tax real estate, agricultural income and services which did not materialise. The tax-to-GDP ratio remained well below 10pc and the three provincial potential revenue areas remained outside the effective net.
Published in Dawn March 10th , 2015
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