ISLAMABAD: As the government has moved ahead with the much-delayed 8th National Finance Commission Award, it needed to review the failures of the previous award (7th NFC Award) that was completed in 2015.
During the meeting of the reconstituted NFC held at the finance ministry on Wednesday, the centre informed the commission that apart from a number of targets missed in the previous award, three major agenda items of 7th NFC had remained unfulfilled during the five-year period.
According to available documents, the commission was informed that one of the major failures of the 7th NFC Award was the collection of taxes, which remained below the target. Unlike the target of 15pc tax to GDP ratio by terminal year of the award (2014-15) and 1pc increase from then onward, the actual achievement during the five-year period was 11pc. Neither the centre nor the provinces had made significant efforts to that effect.
Another major agenda item, which also remained unfulfilled, was the collection of taxes on agricultural income and real estate. The 7th NFC Award had envisaged that both the centre and provinces would tap the potential of tax collection in these sectors. However, the total agricultural income tax collection during the award period was recorded at only Rs1.6 billion. On the other hand, a mere Rs4 billion was collected as property tax.
The third major and important failure of the centre and provinces under the 7th NFC Award was regarding the maintenance of fiscal discipline. Both the centre and provinces had pledged to develop a mechanism to maintain fiscal discipline. However, the factual position, as the NFC meeting was informed, was that the total expenditure of provinces (against revenue) witnessed an average negative growth of 16pc during the five-year period. Similarly, the total expenditure of the federal government recorded an average negative growth of 13pc by the end of the award period.
According to sources, after the 7th NFC Award, both the federal government and provinces failed to observe strict financial discipline. “The humongous sizes of governmental departments had caused colossal wastage of resources. The previous governments had spent resources recklessly, a tendency that continued under civilian and military regimes alike,” they added.
Sources said during the last eight years, a rise in debt servicing, defence and security-related expenditures had continuously reduced fiscal space for the federation.
“The cash-strapped government of PML-N had pursued mega projects that could not be implemented without foreign investment and external debt. It had also launched many ambitious schemes like youth loans. There has also been no will to reduce expenses and revise fancy projects or bring down defence expenses by cultivating friendly relations with neighbours through effective diplomacy,” they added.
The present government of PTI, economists say, while going for the next NFC award, also needed to keep in view the failures of the previous award.