Provinces oppose slashing share in overall Federal Divisible Pool

ISLAMABAD: While formulating seven sub groups, including macroeconomic framework to ascertain the exact size of resource envelope, the provinces in the maiden session of NFC expressed reservations over the inclusion of cost sharing on account of various heads from the share of the federating units.

The Centre included certain provisions of expenditures into Terms of Reference as part of discussions for the 10th National Finance Commission (NFC) Award but all the stakeholders decided to defer discussion on it because the provinces were not ready to listen to any proposal that slashed their share in the overall Federal Divisible Pool (FDP). Sindh Chief Minister Syed Murad Ali, while talking to reporters after the NFC meeting outside the Q Block, said that under the Constitutional provisions, the share of the provinces into the FDP could not be reduced from the last NFC Award, making it clear that all such possibilities would not be considered.

The newly-constituted 10th National Finance Commission (NFC) kick-started its deliberations here on Thursday with minimal hopes of achieving any breakthrough during the current fiscal year as the upcoming budget exercise for 2021-22 would be getting momentum soon. However, all stakeholders started deliberations on a positive note. Earlier, the Centre had proposed 7 percent cut from the share of provinces on account of security expenditures and FATA requirements but the provinces had rejected such a proposal in totality.

Now the Centre is coming up with a new proposal for cost sharing into the national development projects and other heads in order to convince the provinces to reduce their share. Under the 7th NFC Award, the Federal Divisible Pool was distributed as 57.5 percent share for the provinces and the remaining for Centre. The Centre now argues that it cannot meet its financial requirements, so its deficit on per annum basis cannot be brought down below 6 to 7 percent of GDP, keeping in view the existing resource distribution formula intact.

“We are going to set up different sub-groups to start deliberations for placing the new NFC Award. The IMF agreement shows that investors’ confidence was restored in Pakistan’s economy” Federal Minister for Finance Dr Abdul Hafeez Shaikh said in a brief comment before participating in the NFC meeting held here at the Q Block (Finance Ministry) on Thursday.

The NFC session formulated important sub groups, including macroeconomic and fiscal framework under the federal government, straight transfers such as oil and gas shares under Sindh, Tax Harmonization under Punjab, FATA requirement under KP and horizontal distribution of resources under Balochistan.

After the two-hour-long meeting, Chief Minister Sindh Syed Murad Ali Shah told reporters that Sindh had to worry on the last day of every month whether it was going to meet its expenses of salary or how much it would have to get overdraft from the central bank, so the federating units were also facing financial constraints. He said that the provinces’ financial woes increased because the federal government could collect revenue receipts of Rs3.9 trillion in the last two years in fiscal year 2018-19 and 2019-20 that the Centre was used to collecting in fiscal year 2017-18. He said that the provinces' capacity of utilizing funds increased but after paying salaries, development became a major victim because the provinces did not have resources to focus on the development side.

He dispelled the impression that the provinces were unable to collect their due taxes and cited that the FBR was making collection at 5 to 6 percent but the Sindh Revenue Board (SRB) was collecting at 15 to 16 percent in the current fiscal year. He said that the SRB collection was much higher compared to the other provinces.

KP’s Finance Minister Taimur Jhagra told reporters that the province would take up three major issues, including meeting financing requirements of ex-FATA areas as five million people had rendered sacrifices in the last 20 years in the wake of the war on terror, our share of Net Hydel Profit and thirdly overall increasing size of pie of resources for all.

He said that he would not give any specific figures as share for FATA areas but it clearly showed that it was an area administered by the Federation of Pakistan. He said that the NFC was meant to find out ways for ensuring resource distribution among all the stakeholders.

Balochistan’s non-official member for NFC Dr Kaiser Bengali said on the occasion that they expressed reservation over the inclusion of cost sharing of federal government subjects as part of ToRs of NFC.

According to the official statement issued after the meeting, Federal Minister for Finance and Revenue Dr. Abdul Hafeez Shaikh chaired the inaugural meeting of the 10th National Finance Commission (NFC) at the Finance Division. Chief Minister Sindh Syed Murad Ali Shah, Finance Minister Punjab Makhdoom Hashim Jawan Bakht, Finance Minister KP Taimur Saleem Khan Jhagra, Finance Minister Balochistan Zahoor Ahmed Buledi and non ex-officio members including Tariq Bajwa (Punjab), Musharaf Rasul Cyan (KP), Dr. Kasier Bengali (Balochistan), Dr Asad Sayeed (Sindh) and senior officials of the Ministry of Finance/ Finance Departments of the provinces participated in the meeting.

The finance minister welcomed all the participants. While speaking on the occasion, the finance minister stated that the NFC has been mandated by the Constitution to recommend to the president for an amicable distribution of financial resources between the Federation and the provinces of the net proceeds of the taxes. The NFC is a forum to develop harmony between the federal government and the provinces and to work out a sustainable resource sharing formula with mutual consensus, he added.

The federal secretary finance outlined the Terms of Reference (TORs) of the NFC and the main tasks before the NFC, which include developing a sustainable macroeconomic framework for the 10th NFC Award, vertical revenue sharing, selection of indicators for horizontal distribution formula, simplification of taxes to facilitate businesses and bringing the erstwhile FATA at par with the rest of the country.