LAHORE: The reconstituted ninth National Finance Commission (NFC) will meet here on Friday (today) to discuss resource distribution from the federal tax divisible pool with the federal government pushing the provinces to chip in for the development of erstwhile Fata (Federally Administered Tribal Areas), AJK (Azad Jammu and Kashmir) and GB (Gilgit-Baltistan), as well as pay for additional expense on internal security.

Sources with direct knowledge of developments in the matter told Dawn that the federal government also wants the federating units to finance the Benazir Income Support Programme (BISP) and the Higher Education Commission (HEC). All the provinces are, however, holding out to the federal demands with Balochistan calling for increase in provincial share from the divisible pool along with a change in the formula for horizontal division of funds for greater funds for itself. Sindh and other two provinces are nevertheless more in favour of expanding the size of the tax pie to take care of financial crunch facing the federation and the units alike.

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“The federal government is asking us to contribute 10 per cent (from the undivided divisible pool) for Fata and internal security, including the funds required to raise and maintain special army divisions being raised for protection of the China-Pakistan Economic Corridor (CPEC) routes, as well as for development in BG and AJK,” a person involved in the NFC negotiations said on the condition of anonymity.

Additionally, the federal government also expects the provinces to contribute funds for the BISP and HEC. “In all, the total demand works out to be 13-14pc of the undivided federal tax resource. It is but an indirect way of taking back from the provinces what the seventh award had given them after 20 years of hard and delayed negotiations,” the anonymous person said.

Constitutionally, the provincial share of 57.5pc from the tax divisible pool after deduction of 2pc collection charges by the Federal Board of Revenue (FBR) and the allocation of 1pc of resource from for undivided resource for Khyber Pakhtunkhwa to make up for losses on account of years of terrorism cannot be reduced.

Alternately, the sources claimed, the federal government was willing to pass on the cost of electricity subsidies to the provinces if they did not agree to pay for development of Fata, AJK and GB, and the additional security expense.

The first meeting of the reconstituted commission has set up six working groups on various subjects and agreed on the need for additional resource mobilisation. Both Sindh and Punjab had questioned the performance of the FBR, which has failed to raise the tax-to-GDP ratio from 9.2pc in 2010 to 15pc in 2015 as projected in the seventh award and demanded that the provinces be made part of the tax policymaking process.

The commission had also decided to involve the provinces in the dialogue with the International Monetary Fund on fiscal matters.

Published in Dawn, March 29th, 2019