NFC appointment

29 Jun 2020

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IT was obvious to everyone that the presidential order appointing the prime minister’s adviser on finance as a member of the 10th National Finance Commission and authorising him to preside over the deliberations of the NFC in the absence of the premier, who also holds the finance portfolio, wouldn’t withstand judicial scrutiny. The adviser’s appointment as a stand-in for the federal minister for finance and the illegal TORs seeking to slash provincial shares from federal tax resources anticipated political opposition and legal challenges. Therefore, the Balochistan High Court decision last week invalidating Hafeez Sheikh’s appointment for being unconstitutional wasn’t a surprise. Nor did the ruling against the agenda other than determination of the formulae for vertical and horizontal division of tax resources between the centre and provinces, set in the notification that constituted the new commission, shock anyone. The “President of Pakistan and NFC are bound to fully implement the Constitution ... Hence, the federal and provincial governments should utilise joint efforts in order to strengthen the federation rather than racing for a major share of NFC,” the court ruled.

The PTI government has seldom tried to conceal its dislike of devolution of administrative powers to the provinces under the 18th Amendment or their greater fiscal space under the seventh NFC, which continues to operate despite the expiry of its five-year term in 2015. It wasn’t unexpected. The increasing expenditure — especially on account of debt payments, and internal and external security — and shrinking tax collections have widened the resource gap in the past two years. In a contracting economy, the centre is struggling to pay its bills. Even austerity measures and expenditure cuts aren’t helping. Such gimmicks can help only so much. Instead of enlarging the size of the tax pie by widening the net to meet its rising expenditure, the government, like its predecessor, wants the provinces to contribute funds to pay for growing security expenses, SOE losses, subsidies, debt repayments and the development of Azad Kashmir, Gilgit-Baltistan and KP’s tribal districts. Even if the provinces agree to pay 7pc of the undivided tax pool at the cost of their own development as demanded by the centre, the problem will remain. The solution lies in urgently expanding the tax net for doubling the existing tax-to-GDP ratio and not in ambushing the provinces through unconstitutional ways.

Published in Dawn, June 29th, 2020