Federal transfers to provinces on the rise

Updated October 30, 2019

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The quantum of federal transfers from the divisible tax pool to provinces under the National Finance Commission (NFC) award appears to be gradually increasing this fiscal year with Punjab reporting a handsome growth in its share of 16.8 per cent to Rs291 billion till Oct 17 from a year ago. — Creative Commons/File
The quantum of federal transfers from the divisible tax pool to provinces under the National Finance Commission (NFC) award appears to be gradually increasing this fiscal year with Punjab reporting a handsome growth in its share of 16.8 per cent to Rs291 billion till Oct 17 from a year ago. — Creative Commons/File

LAHORE: The quantum of federal transfers from the divisible tax pool to provinces under the National Finance Commission (NFC) award appears to be gradually increasing this fiscal year with Punjab reporting a handsome growth in its share of 16.8 per cent to Rs291 billion till Oct 17 from a year ago.

“The pace of growth in the federal transfers to the provinces is picking up with the passage of each month,” a Punjab finance department official told Dawn on condition of anonymity on Tuesday.

Punjab received 3pc more funds in July, the first month of the financial year, compared with the same month last fiscal year. The increase was recorded at 8pc in August and 10pc in September.

Punjab receives 17pc more so far this fiscal year

The rising federal transfers to the federating units are attributed to improved collection of taxes by the Federal Board of Revenue (FBR) during the current fiscal year.

On Sept 30, FBR Chairman Shabbar Zaidi took to Twitter to announce that the board had achieved 90pc of the tax target for the first quarter of the year. He said the domestic tax collection of Rs960bn during July-September was 25pc higher than the corresponding period last year.

The budget is targeting a growth of 44pc in FBR tax collection to Rs5.5 trillion at the close of the current fiscal under the $6bn bailout package from the IMF. However, few expect the government to achieve the ambitious target.

Punjab expects to receive Rs1,601bn from the federal divisible tax pool this year and committed to produce a cash surplus of Rs232.9bn at the end of the year to keep consolidated fiscal deficit at 7.4pc of GDP.

“The provincial revenues will significantly jump, enabling Punjab throw up the cash surplus at the end of the year, even if the board succeeds in posting over 30pc growth in tax collection instead of the targeted 44pc,” the provincial official argued. Additionally, he said, the overall budgeted provincial expenditure were always on the higher side allowing the authorities to “save” some money through the year.

Although the provincial current expenditure has risen marginally by 6.5pc during the first three months, development spending remains slow. Against Rs100bn released for development schemes, the government had made payments of just over Rs33bn. The pace of development expenditure is likely to pick up during the second half of the fiscal when the overall federal revenue picture will become a little more clear.

Published in Dawn, October 30th, 2019