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December 8, 2018

‘Agri income must shift to domain of Centre to strengthen NFC’


December 8, 2018

ISLAMABAD: Renowned economist Dr Kaiser Bengali on Friday proposed two major steps for making the National Finance Commission (NFC) effective including moving agriculture income from domain of provinces to the federal government and exclusion of personal and corporate income tax from the federal divisible pool (FDP).

The exclusion of personal and corporate income tax will result into losses of Rs181 billion from the FDP under the mechanism of the NFC Award, however, withholding taxes should remain part of the FDP for distribution of resources among the Centre and provinces.

He was of the view that the exclusion of personal and corporate income tax from the fold of FDP under the NFC would give opportunity to the Centre for focusing more on bringing the rich into tax net for overcoming its fiscal woes.

“The reconstitution of NFC is on the cards and it is hoped that the lingering deadlock can be broken as the Centre will have to manage only Sindh because there are PTI supported governments in the remaining three provinces,” Dr Kaiser Bengali said while addressing a session on fiscal decentralisation during the SDPI conference here.

He said the deletion of personal and corporate income tax and allowing the Centre to collect agriculture income tax requires constitutional amendments, and the government could move ahead in case of evolving agreement at the NFC.

In support of his argument, Dr Bengali said the ratio of direct and indirect taxes stands at 12 and 88 percent respectively after taking into account collection of withholding taxes as part of indirect taxes. The indirect taxes, he said, heavily affected the poorest segments of the society. He said that top 10 percent richest of the country contribute only 10 percent of their income while poorest 10 percent pay 16 percent of their respective income indicating regressive structure of taxation system in the country.

He blamed the Centre for plunging into fiscal imbalances owing to inability to raise revenue and slash down current expenditures, and warned that if any attempt was made to reverse the 18th Constitutional Amendment or 7th NFC Award then it would be disastrous for national cohesion and federalism. He said there was no justification in the demand of the Centre for upfront share of 7 percent for security and development into erstwhile Fata on the basis of argument that the fiscal space for the federal government had shrunk. He said the real cause of fiscal imbalances was not the provinces but in fact the Centre did not fully implement the 18th Amendment and it failed to raise revenue and reduce current expenditures.

The defence and debt servicing, he said, ballooned and consumed 12.2 and 12.8 percent shares of average growth in expenditures while the civil administration spending went up by just 5.9 percent with inflation in the range of 8 percent from 2010 to 2017.

To a query regarding PM’s announcement for providing 3 percent share from the FDP to tribal districts, Dr Bengali said it would be unconstitutional move and the PM could not move unilaterally. He opposed the proposal of transferring the Benazir Income Support Programme (BISP) to provinces and said that it would be disastrous as something symbolic for the poor must continue to remind them the state was taking care of them.

Former finance minister Dr Hafiz A Pasha said that the reversal of 18th Amendment and NFC would have far reaching negative impact on the country. He said that all segments of the society would have to contribute for reducing expenditure as tightening of belt must be done by all without any exception. He said that Pakistan was lagging behind on Human Development Index (HDI) so everyone would have to economise to divert resources towards improving conditions of social sector.

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