SHARING tax resources has always been one of the biggest causes of strife among the centre and provinces. Perhaps the only time we saw this friction subside temporarily was when the seventh NFC Award was signed in 2010 after the centre raised the provinces’ share substantially, and Punjab agreed to the long-standing demand of the other provinces to replace the single-factor population-based formula with multi-factor criteria for sharing resources. The new criteria were seen as more equitable. Though population still has a weightage of 82pc, the inclusion of criteria such as inverse population density, poverty and backwardness is a progressive step towards the resolution of inter-provincial strife. The provinces were handed over collection of sales tax on services too. Yet the ‘harmony’ of the initial years did not last long. Soon centrists started blaming the award for the centre’s financial difficulties and the large deficits it had started to run, without realising that Islamabad had failed to carry out its part of the bargain: raise tax-to-GDP ratio by 5pc to 15pc over the five-year life of the award.

Now the federal government is blaming the award, or more specifically, the heavy weightage in the formula for horizontal distribution. Planning Minister Ahsan Iqbal said recently that the existing NFC formula actually incentivises population growth. His concerns regarding Pakistan’s population growth rate of 2.8pc, the fastest in the world, are valid. It has to be reversed or restrained if we are to make progress. Indeed, the weightage assigned to population must be significantly reduced to make space for other criteria to impose fiscal discipline on the provinces and also to encourage them to boost their own tax revenues. However, the provinces are not responsible if the new award is not being negotiated after the expiry of the existing one eight years ago. It is the centre that has dragged its feet on talks for the new award. Moreover, it has not allowed NFC talks since 2015 to go beyond vertical resource-sharing between itself and the provinces. The provinces would be happy to renegotiate provincial-sharing criteria and reduce the weightage given to population.

That said, it is a mistake to blame the NFC Award for escalation in the population growth rate. If Sindh and Balochistan are complaining that their residents haven’t been counted properly, it is more because of political reasons. The MQM isn’t fighting for more resources for Sindh from the federal divisible pool but for more national and provincial assembly seats from Karachi and other urban centres. Reduced population weightage on its own will not slow down the birth rate; there are several other factors such as poverty, illiteracy and high child mortality that also need to be addressed before population growth can be reduced.

Published in Dawn, May 22nd, 2023