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n August 22, President Asif Ali Zardari appointed the 11th National Finance Commission to consider the division of financial resources between the Centre and the provinces and among the various provinces. There have been suggestions that after debt servicing and allocations for defence, the Centre is not left with enough resources to adequately perform its executive functions. Besides some provincial governments want the resource sharing criteria to be modified to provide for their specific needs.
For quite some time now, people associated with the Finance Ministry and a group of parliamentarians from various parties have been advocating for revising the revenue share to improve the federal government’s financial position.
The 7th NFC Award, has now been in force for nearly 15 years, way beyond its five year constitutional mandate. Successive presidents have had to extend its remit every year due to disagreements among the provinces and the Centre over reaching a new formula.
The 18th Amendment protects the share of the federating units, stipulating that a sub-federation’s share in any future award must not be less than its share in the previous award.
The 11th commission, led by Finance Minister Muhammad Aurangzeb, comprises the four provincial finance ministers and nominated technical experts from all provinces.
According to the 7th Award formula, 57.5 percent of the divisible tax pool is shared by the provinces; the Centre gets to keep the remaining. The new commission will revisit the revenue-sharing scheme. Its terms of reference suggest that future allocations may not be determined based mainly on population as has been the case historically. The weight for considerations like education, health, population control, climate resilience and fiscal performance may be increased.
Talking to The News on Sunday, an official from the Finance Ministry said: “There is a proposal to incentivise efficiency instead of demography.”
Another important suggestion is the allocation of separate funds for Islamabad, Azad Jammu and Kashmir and Gilgit-Baltistan. These are currently funded from the federal exchequer. Another proposal is that the provinces should contribute to the cost of federal or trans-provincial projects, such as disaster preparedness and rehabilitation.
The provincial governments are uneasy with these proposals. Khyber Pakhtunkhwa, for example, wishes natural resources, backwardness and geography to receive greater consideration in the new sharing formula. This position is also seen as a form of political protest since the KP government is led by the Pakistan Tehreek-i-Insaf, which the main opposition party in the Centre.
Under the 7th NFC Award, 57.5 percent of the divisible tax pool goes to the provinces, the Centre gets to keep the remaining. The commission has the role of revisiting the resource sharing scheme.
Most economists warn that cutting the provincial share without expanding the country’s narrow tax base will undermine provincial autonomy and strain Islamabad’s relations with the federating units.
Most experts also agree that Pakistan must strive for a higher tax-to-GDP ratio. The state, they say, should focus on “baking a bigger pie” rather than creative ways of slicing the pie to accommodate various claims.
The 7th NFC Award allocated 57.5 percent of the divisible tax pool to the provinces, leaving 42.5 percent with the Centre. The primary distribution criterion among the provinces was population, which had 82 percent weight. Backwardness and poverty carried a 10.3 percent weight, effort at revenue collection 5 percent, and geography 2.7 percent. Islamabad, Azad Jammu and Kashmir and Gilgit-Baltistan were not provided special allocations. The deal was regarded as historic because it was seen guaranteeing financial autonomy for the provinces.
Projections for the new award point in a different direction. There is pressure to enable the federal government to fulfill its obligations. The weight for population is likely to decrease and for education, health, population control, climate resilience and fiscal performance to be increased. Provincial allocations may also be made subject to performance evaluation in these areas.
Backwardness and poverty, which received some attention in 2010, are likely to become more salient. Khyber Pakhtunkhwa and Balochistan are likely to support this.
Geography and natural resources, which received very little attention previously, could become more significant if these provinces manage to make their case.
One of the most significant changes to be proposed is the addition of special allocations for Islamabad, AJK and Gilgit-Baltistan from the divisible pool. This was not attempted under the 7th Award. Concurrently, the Centre is exploring the possibility of transferring some more subjects to the provinces. This might include funding supra-provincial development schemes and managing management.
Politically, the 7th Award was seen as a huge victory for provincial autonomy. There has been much talk recently suggesting that the next award might represent a rollback.
Meanwhile, Riaz Fatiana, an independent MNA, has tabled a bill in the National Assembly, proposing a new province carved out of the Punjab. Another formula being discussed by some political leaders and prominent non-political figures calls for 12 provinces. This might require reconstituting the NFC with new ToRs.
The writer is a senior journalist, teacher of journalism, writer and analyst. He tweets at BukhariMubasher