ISLAMABAD: All five stakeholders — the Centre and the four provinces — have failed miserably in the past seven years to deliver on their promise to increase tax-to-GDP ratio to 15 per cent in five years, the National Finance Commission (NFC) has said.

Despite that, the four provinces received more funds than were promised by the federal government in the 2015-16 financial year owing to healthy tax collection, the NFC told parliament last week as required under Clause 3(B) of Article 160 of the Constitution.

A detailed report in this regard was jointly finalised by the five finance ministers at a meeting on November 28 because the constitutional clause required the “federal finance minister and provincial finance minister to monitor the implementation of the (NFC) award biannually and lay their report before both houses of the parliament”.

The 2009 NFC award required the federal and provincial governments to achieve 15pc tax-to-GDP ratio by 2014-15, and a path towards this had been chalked out for all five stakeholders. The report, however, indicated that they had failed on this account.

“The tax-to-GDP ratio improved marginally...from 9.4pc in 2012-13 to 9.5pc in 2015-16,” the report conceded, with regard to the federal government that was required to increase the ratio from 9.3pc in 2009-10 to 13.25pc by the terminal year 2014-15 — a milestone ages away seven years on.

In a rare feat, however, the four provinces received a greater share than what they were promised under the federal budget 2015-16, the NFC said. This was mainly because of a healthy growth of 20.2pc in the FBR collection during 2015-16.

The report said Punjab had been promised Rs895 billion in the budget and it received Rs901.45 billion, an increase of 0.75pc.

Sindh received Rs500.08 billion against a budgeted commitment of Rs482.8 billion, a rise of 3.6pc, due to high returns on natural resources.

Khyber Pakhtunkhwa was promised Rs300.452 billion in the budget and it received Rs302.05 billion, an increase of 0.52pc.

The Balochistan government was given Rs187.66 billion in 2015-16 against a promised share of Rs171.5 billion, up by 9.42pc.

The report said the amount released to the provinces was on the basis of FBR collections amounting to Rs3.131 trillion. Of this, Rs1.448 trillion was reported in the first half (July to December 2015) and Rs1.683 billion in the second half (January to June 2016) of the financial year 2015-16.

The report said that the total receipts of the FBR included some non-divisible pool components. Therefore, after deducting such components, the gross divisible pool taxes were worked out at Rs3.084 trillion instead of Rs3.131 trillion.

However, after a deduction of one per cent collection charges (Rs43 billion) by the federal government, net divisible pool taxes during 2015-16 were reported at Rs3.04 trillion. An amount of Rs30.4 billion was set aside as one per cent compensation to KP for damages in lieu of the war on terror, leaving the actual net divisible pool taxes at Rs3.011 trillion.

Of this, the total provincial share (vertical share) was worked out at Rs1.73 trillion. Distribution to the provinces was made as required under the 7th NFC award in 2009: 51.74pc share for Punjab, 24.55pc for Sindh, 14.62pc for KP and 9.09pc for Balochistan.

Published in Dawn December 24th, 2016

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