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Sindh Government urges to NFC must be considered

By Dr. Abdul Razak Shaikh,

The ninth National Finance Commission (NFC) held its meeting in Islamabad on Wednesday in order to discuss the financial position of the center and the federating units and set the agenda for negotiations on the distribution of the divisible pool for the next five years.

The participants of the meeting, which was chaired by Finance Minister Assad Umar, agreed that next resources distribution of the NFC award should be in accordance with the basis of 6th population census 2017.

The Seventh finance Commission Award has already fixed the provincial share at 57.5% of the divisible and 42.5 % remains with Federation.

Six groups have been formed to prepare recommendations for the distribution of resources among provinces, FATA affairs, improving ease of doing business as well as addressing macro-economic issues. Need of AJ&K and GB to be coordinated by the federal government.

The NFC is to meet every six weeks from now onwards. It was also decided that provinces will be involved in the dialogue with the IMF in the future.

During the meeting, the federal finance secretary briefed the participants on the current financial situation of the country. Provincial representatives also informed the participants about the financial state of their respective provinces.

The meeting also discussed recommendations for improving the distribution of resources among provinces and smooth communication between the Centre and provincial administrations. The ninth NFC has been deadlocked since July 2015.

The National Finance Commission Award or NFC is a series of a planned economic program enacted since 1951. Constituted under the article160 of the Constitution, the program has emerged to take control of financial imbalances and equally managed the financial resources of four provinces to meet their expenditure liabilities while alleviating the horizontal fiscal imbalances.

Because of resistance from the provinces, the previous PML-N government had thought it better to delay discussions on the new award until after the 2018 general elections. The Pakistan Tehreek-i-Insaf (PTI) government recently reconstituted the commission to start negotiations afresh. Finance Minister Umar had last week said that the government would enter the NFC negotiations with an open mind.

Mr. Assad Umer said that we are not starting discussions from a fixed position. We will explain to the provinces the economic and financial issues confronting the country and try to reach a consensus on the points that need to be addressed in the next NFC award.

The last NFC award was signed in December 2009 and has been effective since 2010-11. The award is often described as historic as it was agreed upon after a lapse of 20 years and drastically increased the combined provincial share from the pool that, under the Constitution, could not be revised down.

Sindh government refuse to share the FATA from their award and claiming 104 Billion are already due to center.

Sindh chief minister Syed Murad Ali Shah said on Monday after the preparatory meeting regarding NFC that from now on, provinces should be allowed to collect the tax themselves.

The chief minister made the remark while preparing Sindh’s case in consultation with a team comprising members of the Sindh Revenue Board (SRB) and other finance, planning and development experts.

According to Syed Murad Ali Shah, the SRB can do a better job collecting these taxes due to its close proximity to the tax base.

Shah further said that the collection of sales tax on goods should be assigned to the SRB to make the exercise more efficient.

The chief minister suggested that SRB can collect that tax on behalf of the FBR and retain a service charge; similarly, the federal government collects Capital Gains Tax (CGT) on immovable property. The CGT is levied on the basis of the Income Tax Ordinance. In the spirit of the 18th Amendment, this tax should be devolved to the provinces.

Chief Minister said about Gas Infrastructure Development Cess (GIDC), that GIDC also needs to be transferred to the provinces as it is a provincial matter.

Speaking about his government’s stance on Octroi and Zila Tax (OZT), CM Sindh argued that OZT is a consumption tax and Sindh’s share in it had been 46 percent when it was administering it independently.

But now the federal government has come along and convinced Sindh to stop collecting OZT in return for reimbursement from the federal government.

The chief minister further added that for this purpose, the federal government had enhanced the rate of sales tax from 12.5pc to 15pc, with the extra 2.5 percent levy used to compensate the provinces.

Syed Murad Shah recalled that in 2010 the federal government had started transferring funds in lieu of OZT on the basis of the criteria which governs the NFC award. This reduces Sindh’s share of the tax to 0.66pc.

Sindh government plans to urge the federal government to enhance Sindh’s share of the OZT to at least 2pc.

Through the 18th Amendment in the Constitution, two new subclauses i.e. clauses (3A) and (3B) have been inserted in Article 160. Through clause (3A), it has been made binding for the NFC not to reduce the share of the provinces as compared to the previous Award.

The amendment at the same time moved in a big way in devolving administrative and political powers and ensuring robust fiscal transfers to the federating units.

The next NFC award hopefully not work as a post office but will instead work as a proactive body, taking care of all areas of prudent fiscal management. It should include a nexus in revenue generation between the Federation and constituent units. Revenue flows to the provinces need to be benchmarked with their efforts to widen their own source revenues as well.

In the same way with the hope that NFC award will satisfy the Sindh government, having major revenue from the province.

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