THE Khyber Pakhtunkhwa government has given the federal government a 15-day deadline to resolve the province’s unpaid payments and ongoing power shortages. The question remains: is this a genuine threat or simply a political ploy?

Chief Minister Ali Amin Gandapur stated in the provincial legislature that the federal government and its relevant ministries have cut provincial receipts by Rs300 billion this fiscal year. Previously, similar requests for unpaid funds, particularly for merging tribal districts, were made under the province’s caretaker government tenure. However, the situation remains unresolved.

The federal government has approved a Rs23bn package for AJK in response to protests. This move is expected to strengthen KP’s position in securing its fair share. The question now is whether the KP government will seek its share from the federal government and its controlled ministries through violent protests, as the AJK people did, or pursue legal action.

CM’s Finance Advisor, Muzammil Aslam, has sent five letters to the federal government and its departments, requesting the early release of the province’s pending dues. Mr Aslam stated that despite the reduced resources transferred to the province, KP will meet its obligation to display a surplus of Rs96bn as agreed with the International Monetary Fund.

Contrary to this, it is still being determined whether the province is complaining about a decline in federal government resources transfer while demonstrating a surplus to meet IMF terms, implying that the provincial development budget will bear the brunt of the surplus.

In background interviews and discussions with high-ranking officials of the KP government, it has come to the forefront that a staggering 95 per cent of all the revenue receipts of the provincial government are reliant on the federal government.

This dependency on the federal government has significant implications for the financial stability and autonomy of the provincial administration. Any decline in these disbursements disrupts the intricate equilibrium of the KP government, jeopardising the timely payment of salaries and pensions.

After the 25th Amendment, the federal government was reluctant to increase the province’s divisible pool share from 14.62 to 19.64pc in the wake of the Fata-KP merger. Previously, KP owned 14.62pc and Fata 5.02pc. The major parties ignored this infringement, but the KP caretaker regime and now the PTI government raised it with the federal government.

The provincial government spent Rs116bn on the current and development budgets of the amalgamated districts in FY24, receiving only Rs66bn from the centre and leaving a balance of Rs50bn. Mr Amin has given the federal government a two-month deadline to transfer the remaining tribal regions amount to the province or face resistance.

Since February 2022, there has been zero sales tax on petroleum products, significantly reducing provinces’ revenue share. However, the federal government collects petroleum development levy (PDL) with a target of Rs1 trillion for FY24.

If POL products were subject to sales tax, provinces would have received half of the revenue. This decision has a significant impact on KP and Balochistan because Sindh and Punjab get a lot of revenue from general sales tax (GST) on services.

The KP finance department has identified Rs8bn as a pending NFC difference sum. The province has also questioned the authenticity of the FBR’s revenue-collecting figures for June 2023. Interestingly, the finance department’s letter also wants accurate monthly FBR collection data for efficient budgetary planning.

At the same time, the federal government is hesitant to resolve the cross-input tax adjustment between the KP Revenue Authority and the FBR. This amount is anticipated to be Rs5.33bn for the five years between 2016 and 2020, and it is seeking federal approval.

Another significant problem for the province is the transfer of the windfall oil levy (WLO) to the province. The oil fields in KP produce over 30,000 barrels of crude oil per day, accounting for around 42pc of total national production. The KP caretaker government has also raised this matter with the then-Prime Minister Shehbaz Sharif and Caretaker Prime Minister Anwarul Haq Kakar on various occasions. However, the matter is still unresolved. The PTI government has again raised the issue with the current federal government, requesting an early release of the province’s delayed WLO money.

The provincial administration estimates that the omission will result in financial losses of Rs50bn for the Tal Block and Rs511 million for the oil-producing fields of Baratai and Togh.

Published in Dawn, May 19th, 2024

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