ISLAMABAD: Amid tough divergent positions and demands for increased share out of common resources by the provinces, the federal government said on Tuesday the president could extend the 7th National Finance Commission (NFC) award for another year in the absence of a fresh consensus.

At the first meeting of the 9th NFC, the provinces called for higher share from the divisible pool of resources while the centre made a pitch for jointly sharing the responsibility of war against terrorism, natural disasters and the needs of special areas like Azad Jammu and Kashmir, Gilgit-Baltistan and the Federally Administered Tribal Areas (Fata).

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

Editorial: Next NFC award

The centre and the provinces seemed to be locking horns over the issue of increase in funding to the provinces commensurate with additional responsibilities following the 18th Amendment, but agreed that all stakeholders had jointly and miserably failed over the past five years to deliver increase in tax-to-GDP rate that was the basic premise of the 7th NFC award.

The major responsibility for the failure to increase revenue base was put on the federal tax machinery.

With all these and so many other issues on the table at the very outset, the meeting, presided over by Finance Minister Ishaq Dar, finally decided to appoint a sub-committee of technical experts and order at least five crucial studies to have a detailed view of ground realities supported by data and analysis to set in motion a roadmap and move forward.

This made almost clear that the 8th NFC was not possible in about a month time left for announcement of the federal budget for 2015-16 and before the 7th five-year award expired on June 30 this year.

Provinces seek higher share from divisible pool

This was further reinforced by federal Finance Secretary Dr Waqar Masood Khan who said: “The constitution is very clear that the president has to extend the existing award until fresh consensus is achieved.”

In reply to a follow-up question, Mr Khan asked journalists to read the constitution, suggesting that the extension could be “automatic”.

After the meeting, the provinces and the centre let their views known to journalists regarding their positions on the NFC, but Sindh Finance Minister Murad Ali Shah conspicuously slipped out despite his government being vocal in alleging non-provision of its NFC share by the centre, while the province’s private member Salim Mandviwala was reportedly absent because of health reasons.

Dr Kaiser Bengali, Balochistan’s private member, said none of the provinces complained of diminished share out of collected revenue during the meeting, even though all realised that targets for revenue collection were not met. He said the tax-to-GDP ratio stood at roughly 10 per cent instead of 15pc promised in the 7th NFC.

Dr Waqar Masood, who is also the government’s expert on the NFC, said the meeting was of an introductory nature in which members had been briefed on NFC-related constitutional provisions. The NFC had an overview of targets, successes and failures of the 7th award, along with transfer of resources to different stakeholders and what they achieved out of that.

The meeting was briefed on the latest macroeconomic situation which also completed a biannual review of the first half of the fiscal year in terms of implementation status of NFC, he said.

The meeting unanimously ordered five studies on revenue and expenditure projections, the shift in ground realities like devolution and responsibilities, borrowing powers and arrangements for provinces, how to increase taxes and how security situation had put additional burden on the federal government.

The parties also pointed out difficulties in collection of sales tax on services and its problems on businesses. “All parties presented their positions, but the issue of give-and-take did not arise at this stage,” the finance secretary said.

Balochistan Chief Minister Dr Abdul Malik said the provinces had demanded an increase in their joint share which currently stood at 57.5pc, while his province demanded that the population weight in resource sharing be reduced from 82 to 50pc and share of inverse population density increased.

Dr Aisha Ghous Pasha, Punjab’s private member, said the current NFC had failed to meet the commitment to increase tax-to-GDP ratio to 15pc. She said the centre and the provinces had failed to deliver on this front. She said the provinces had improved tax-to-GDP ratio to 0.8pc instead of achieving the 1.15pc target, but major failure was on part of the federal government. Now both sides would have to accelerate fiscal effort.

She said Punjab had sacrificed too much while playing big brother role in the last NFC to give opportunity to other provinces, but nobody should have unlimited expectations from Punjab as it had given enough sacrifices and also had to improve conditions of the its own people.

Khyber Pakhtunkhwa Finance Minister Muzaffar Said said his province was at the frontline of the war against terrorism and its infrastructure had been devastated by militancy, pressure of internally displaced persons, Fata and Afghan refugees having burden on hospitals, schools, roads and other infrastructure of the province.

He said he had sought higher share for his province out of the international assistance for war on terror and an increase in special grant from one to three per cent of divisible pool taxes. The minister said there had been reports of neglect and unfair treatment in Balochistan and KP, but this was not the case at the moment.

He said the KP government wanted a separate NFC for AJK, Fata and Gilgit-Baltistan and hoped the entire nation, particularly the people of his province, would hear good news from the federal government. He said he also demanded disbursement of about Rs500 billion arrears of the net hydel profit and raised a fresh demand of Rs119bn for its water share utilised by other provinces.

Dr Kaiser Bengali said there was also a view that the fresh NFC award without national census would be meaningless, but it was generally agreed that absence of census results should not be the reason for a new award. He said extension in the existing award appeared to be the only available option.

According to him, the federal government said it was under financial burden and although the provinces wanted higher share out of common pool, it would have to be seen how far the centre could go.

He said the question of provincial borrowing also came under discussion as the provinces were practically incapable of issuing sovereign guarantees despite having powers to have up to $200 million international debt.

Dr Bengali said there were some controversial issues on which the Balochistan government was ready to discuss but had not given any commitment. These included sharing of burden for disasters, war on terror, AJK, Fata and GB, besides the provincial compulsion to increase salaries due to federal decision to increase salaries of its employees having significant impact on provincial finance.

Published in Dawn, April 29th, 2015

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