SINDH presented its case to devolve the collection of the sales tax on goods to the provinces in a National Finance Commission group huddle held last week to prepare for the 9th NFC Award meeting, which is expected in the last quarter of this calendar year.

According to the information gathered, the proposal enjoyed the unconditional support of Punjab but was opposed by Balochistan, while Khyber Pakhtunkhwa pledged to back it after its reservations were clarified. But to the chagrin of the participants from the three smaller provinces, the representatives of Punjab and the federation missed the NFC group meeting.

The members from Sindh presented the findings of their study on improving the efficiency of the tax administration for higher revenue generation last week in a meeting of the group on ‘devolution on taxes — one of the four working groups for the 9th NFC.

Senator Salim Mandwiwala, Sindh’s technical member who chaired the meeting in Karachi, said opposition by the other smaller provinces to the proposal of decentralisation of sales tax collection was rooted in their lack of understanding of Sindh’s suggestions.

Sindh and Punjab are ready to give an undertaking to the FBR to make up for any shortfall in its assigned revenue target for the collection of sales tax on goods — Sindh’s technical member Senator Salim Mandwiwala

“They probably thought we wish to devolve the sales tax regime. But we are not. We are asking the federal government to allow the provinces to collect the sales tax for them and evolve a system of incentives for the provinces for exceeding the targets assigned by the Federal Board of Revenue,” Mandwiwala told Dawn over phone from Islamabad.

“We collected the service tax more efficiently. The Sindh Revenue Board has a proven track record. It has advanced technology and a better team of tax collectors,” he asserted.

“Sindh and Punjab are ready to give an undertaking to the FBR to make up for any shortfall in its assigned revenue collection target,” he said. “The pledge indicates the confidence of the two provinces on their capacity to deliver better than the archaic and corruption-riddled structure of the FBR.”

He feared that the delay in the appointment of the seat vacated by Punjab’s technical member Ayesha Ghous, who assumed the charge of the province’s finance minister, could delay the finalisation of the 9th NFC award.

Kaiser Bengali, a leading member of Balochistan’s NFC team, said over phone from Quetta that “we would resist an attempt to destroy the federal financial structure. We are for a fair and equitable distribution of resources among the federating units, but are not aiming to snatch all the resources of the federal government to make it impotent”.

“There are huge technical problems involved in tinkering with the sales tax regime. It is not practical to devolve the sales tax, which enjoys constitutional protection,” he said.

His team opposed Sindh’s idea, and he also criticised the absence of the key members of Punjab and the federal government from the group meeting.

An insider said Balochistan actually did not have the capacity to collect the sales tax. “Sindh’s proposal, if accepted, would expose their soft belly and that was the real reason for their reluctance,” he said.

“The position that a province takes depends primarily on its perception of how is it going to pan for its interests. All of a sudden the Balochistan team was found championing the cause of the federal government. It would be naïve to assume that it cares more than others for the federation,” commented another member of the NFC.

Kamran Rehman, a member of the KP team, sounded optimistic. “The reservation initially expressed by our team was over the modalities. We did endorse the proposal once it was clarified that it involved just the collection and not the tax itself,” he told this scribe over phone from Peshawar.

“The KP group has been tasked to assess the efficiency of public spending in the country and suggest ways to improve the utilisation of scarce resources. It is a data-based study for which we need data from the other provinces. We have dispatched requests to Sindh, Punjab, Balochistan and the federal government,” he said.

He also lamented the federal government’s ‘crossing over into the financial territory of the provinces’. He mentioned the advance income tax that is assessed on the value of assets, including property and vehicles, which are both provincial subjects.

Attempts were made to solicit the federal government views on the Sindh’s proposal and why its members opted out of the group meeting, but Finance Minister Ishaq Dar and the finance secretary were not available. They were in Nepal for the Saarc finance minister meetings.

“It is lame to read too much into the absence of the federal team in a NFC group meeting. The federal government values financial devolution and would like to look through all the suggestions to improve resource mobilisation. It is unfair to question the motive and the direction of the Nawaz Sharif government at every turn,” a senior officer of the finance ministry defended the government.

The May 2015 NFC meeting had extended the 8th NFC Award by a year. It had also constituted four groups, each led by a province, to clarify certain issues before the finalisation the 9th NFC award. Sindh was given the topic of devolution of taxes. It was ahead of the others and completed and presented its part of the mandate last week.

The Punjab group, responsible for resource mobilisation at the federal and provincial levels, has reportedly circulated its draft proposals among the NFC members and is expected to call the meeting early next month. KP is said to be waiting for the other provinces and the federal government to respond to its request for expenditure data; the task for the Balochistan group has yet to be spelled out.

Published in Dawn, Economic & Business, August 24th, 2015

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