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New govt to finalise next NFC award

Updated January 28, 2018

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LAHORE: The federal government and provinces have agreed to defer the ‘suspended’ deliberations on tax resource division between them under the new National Finance Commission (NFC) until after next election, but decided to continue work to update technical or sectoral studies in the meanwhile.

The decision was made during a meeting of the federal and provincial finance secretaries held in Islamabad on Wednesday, officials told Dawn on Saturday.

The meeting was convened by Federal Finance Secretary Arif Ahmed Khan, who took over his new job only a few weeks back, to ‘understand where the things stood on the ongoing NFC negotiations’ for the 9th award and if it could be finalised well before the next budget.

The budget 2018-19 will be based on the last award that expired in June 2015

“The provinces had argued that it was futile to resume deliberations on resource-sharing because of limited time available as the politically beleaguered government is completing its five-year term in May and next elections are schedule later in summer,” an official told Dawn on Saturday.

Mr Khan has given the working groups three weeks to update the technical reports assigned to them. Punjab is working on resource mobilisation at federal and provincial level for boosting tax-to-GDP ratio, Sindh on devolved versus integrated tax structure-evaluation of tax collection framework in Pakistan, Khyber Pakhtunkhwa on expenditure analysis at the provincial and federal level, Islamabad on rationalisation of subsidy and grants.

“These reports were presented during the second and last NFC meeting held in November 2016. But the federal government was not satisfied with them,” the official who requested anonymity said. These reports will provide a basis and data for discussions on the next award.

The NFC negotiations broke off after the second meeting of the commission where Islamabad has asked the provinces to earmark upfront 7pc from the federal divisible tax pool before its vertical division between the federation and provinces: 3pc for security of China-Pakistan Economic Corridor (CPEC) and war-on-terror, and 4pc for development expenditure in Gilgit-Baltistan, Azad Kashmir and Fata.

Unwilling to concede to the federal demand on their share from the divisible tax pool, the provinces had sought time to firm up their response because it would significantly cut the size of the pie available for vertical division.

No meeting of the commission has since been convened, mainly because of the corruption inquiry linked to the Panama Papers that resulted in disqualification of ex-prime minister Nawaz Sharif and institution of NAB cases against Ishaq Dar, the ailing finance minister who is on a 3-month leave since November.

“There is a consensus in the government that it is in no position to resume ‘political negotiations’ involved in the finalisation of the new award let alone conclude it in such a short time,” the official contended. “Therefore, the next budget will be based on the seventh NFC award that expired in June 30, 2015.”

Published in Dawn, January 28th, 2018