Cantonment boards approach MoF to settle revenue dispute with provinces

Finance ministry likely to take up the issue in next NFC meeting

ISLAMABAD: Over 50 cantonment boards across the country have approached the Ministry of Finance, seeking their due share of general sales tax (GST) through National Finance Commission (NFC), since the provinces are not sharing the revenue.

As per the documents available with this scribe, the cantonment boards, which are under the control of the Military Lands & Cantonments Department (ML&C), have complained that the provincial governments are not regularly providing funds to their respective boards despite repeated requests and reminders.

The CBs, through the Ministry of Defence, informed the Finance Division that up till 2018-2019, the provincial governments had held over Rs5.6 billion worth shares of CBs, of which a major chunk of the defaulted amount was on part of the Sindh government.

According to documents, Sindh had held over Rs4.3 billion worth shares of Karachi and Hyderabad cantonment boards; Punjab had held around Rs700 million, while Balochistan and Khyber Pakhtunkhwa had kept Rs511.5 million and Rs47 million, respectively.

Sources revealed that the provincial governments, especially Sindh and Balochistan, were reluctant to share additional revenue in line with the increase in the number and jurisdiction of the boards.

Prior to July 1999, municipal corporations/committees and district councils were authorised to collect Octroi and Zila Tax (OZT). Out of the total collected OZT, a reasonable share was transferred to cantonment boards situated within the limits of these corporations/committees. Some cantonment boards used to collect OZT independently.

Later, in pursuance of a decision of the Inter-Provincial Coordination Committee (IPCC) in 1999 to abolish OZT, the rate of GST was raised from 12.5pc to 15pc with a view to utilising the additional collection exclusively to offset provincial losses due to abolition of OZT.

Consequently, the provincial governments started transferring funds to municipal corporations/committees out of their divisible pool share for onward distribution to cantonment boards.

In 2006, through Presidential Order (Distribution of Revenues and Grants-in-Aid [Amendment]), an amount of net proceeds of 1/6th of sales tax (2.5pc additionality of sales tax) was earmarked for the provinces for further transfer of such amounts to the district governments and cantonment boards without retaining any part thereof. As per practice in vogue soon after the abolition of OZT, provinces were making payments to the CBs.

However, according to sources, a dispute over the quantum of the amount and number of boards had emerged between the provincial governments during the past few years, as provincial governments wanted to continue with what was decided previously while the CBs wanted an increased share as per the number of boards and expanded jurisdiction.

According to finance ministry officials, the centre transfers NFC shares to the provinces as per formula agreed in the NFC Award. In the 7th NFC Award, which is in operation with effect from 2010, “There is no legal binding on provinces to make payment to the cantonment boards.”

But after the 18th amendment in the constitution, it is the prerogative of the provinces to transfer funds to local councils and cantonment boards.

The Finance Division, according to the officials, has, however, suggested the provinces to establish their Provincial Finance Commissions for distribution of revenues between the provincial governments and their respective local councils.

As per the officials, the finance ministry has also suggested the Ministry of Defence to take up this matter at the forum of Council of Common Interest (CCI) as there is no legal binding on provinces to release funds to CBs under the existing distribution of resources (7th NFC Award).

As the Ministry of Defence has requested the Finance Division to take up this matter with NFC for further arrangements, the finance ministry may take up the matter regarding the release of funds to CBs in the next NFC meeting.

Ghulam Abbas
The writer is a member of the staff at the Islamabad Bureau. He can be reached at [email protected]

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