Federal financing for provincial budgets needs to flow smoothly, and without delay. Now the federal government is reported to have deducted nearly Rs32 billion out of Rs35 billion at source from a 15-day fiscal share of the Sindh government, as revealed by Sindh Chief Minister Murad Ali Shah. According to him, the federal government has released less than 10 percent of the due amount to Sindh. If these claims are true, at-source deduction from the Sindh government's fiscal share cannot be justified under any pretext. Relations between the federal and Sindh governments are already strained – Sindh has other grievances too, such as perennial gas shortages – and this move is likely to add further rancour between the two.
There are certain procedures for such deductions, but according to the Sindh government the FBR has violated the laid-down procedures. Unilaterally slashing the share of Sindh from the NFC will have serious implications for relations between the central government and the federating units. Keeping in mind the delicate nature of our federation, there is a need to reduce disharmony between the centre and the provinces. Distrust is not a good thing within a federation, which relies solely on cordial relations between the federation and its units. There is also the issue of the federal government apparently dispensing with an amount of approximately Rs40 billion to two provinces where the PTI is in power without any deductions. Needless to say, that would translate into Sindh feeling discriminated against.
After the 18th Amendment, the divisible pool for the provinces plays a significant role in their budgets. Any delay or undue deductions increases the province’s budgetary backlog. It is understandable that the federal government itself is cash-strapped because of the pressure from the IMF, but it needs to refocus its resources in a more creative manner. If the central government wants to restrict its investment to areas of federal responsibilities, it can but abiding by the NFC Award is of vital importance here. The provinces cannot take full fiscal charge of all devolved subjects unless there is a steady stream of the divisible pool to them. The objective of increasing the provincial share in federal tax receipts under the NFC was to enable the provinces to take up the responsibilities of the ministries devolved to them. Both the federal and provincial tax agencies must create an environment where both can work out appropriate solutions to their disputes. If the FBR fails to attain its tax collection target, the tax-to-GDP ratio will likely remain the same. Leaving a wide resource gap for a provincial government is an ill-conceived strategy. Sindh has seen a drastic surge in its current spending on account of fast growing pay and pension bills. Any undue deduction from the divisible pool will squeeze its capacity to implement its financial plans. The centre has an obligation to support all provinces without any discrimination while also curtailing its unnecessary expenditure.