Govt constitutes 10th National Finance Commission

–Centre includes resources for security and natural disasters/calamities as part of NFC ToRs 

–President allows finance adviser to chair NFC in absence of minister

ISLAMABAD: With the conclusion of the five-year period of previous National Finance Commission (NFC) last month, the government has notified the constitution of 10th NFC.

The NFC award would be considered effective from April 23, 2020.

As 8th and 9th NFC remained inconclusive, the revenue distribution mechanism set under the 7th NFC Award, given by the Pakistan People’s Party (PPP) in 2010, would be extended to the new NFC.

Surprisingly, in the Terms of Reference (ToRs) for the new NFC, there were additions of a few terms, which, according to insiders, were not part of the previous commissions.

The ToRs mentioned in a notification issued on Tuesday included ‘Assessment and allocation of resources to meet expenditures made on security and natural disasters/calamities’. Sources believe that the provinces may object giving additional share in NFC to the Centre on account of security and national disaster.

Meanwhile, another addition in ToRs was related to ‘Assessment of total public debt and allocation of resources for its repayment’. Sources said the issue of repayment of debt and proposing any allocation under this head was new for the NFC. The same, according to sources, may also invite objection from provinces.

As per the insiders, the rest of the ToRs were almost similar to those in previous commissions.

The ToRs of 10th NFC included distribution of net tax proceeds, including income (corporation) tax, between the federation and provinces. However, taxes including tax on income consisting of remuneration paid out of the Federal Consolidated Fund, taxes on the sales and purchase of goods imported, exported, produced, manufactured or consumed are excluded.

As per the ToRs, the new NFC would also assess export duties on cotton, along with other such export duties, excise duty and other taxes as may be specified by the president. Grants-in-aid would be made by the federal government to the provincial governments.

Other ToRs included the exercise of power by Centre and the provincial governments to borrow powers conferred by the constitution, assessment and allocation of resources to meet expenditures related to AJK, Gilgit-Baltistan and newly merged districts of Khyber Pakhtunkhwa (erstwhile FATA); rationalization of subsidies given by the federal and provincial governments in their respective budgets and agreeing on a mechanism to finance them; exploring ways to reduce losses of state-owned enterprises and agreeing on mechanism for sharing these losses between the federal government and the provinces.

COMPOSITION OF 10th NFC

As there was a constitutional issue in presiding over the NFC meeting in the absence of a federal finance minister, the president through the notification has allowed Adviser to PM on Finance and Revenue Dr Abdul Hafeez Shaikh to preside over the commission’s functions.

However, officials claim, the final signature on any decision of the NFC meeting would be made by the prime minister as minister in charge.

Besides Abdul Hafeez Shaikh, the commission would comprise of finance ministers of four provinces as members of the commission. Other members would include Tariq Bajwa from Punjab, Dr Asad Sayeed from Sindh, Musharraf Rasool Cyan from Khyber Pakhtunkhwa, and Javed Jabbar from Balochistan.

Finance Secretary Naveed Kamran Baloch would serve as an expert for the commission.

Under the existing NFC arrangements, the Federal Divisible Pool (FDP) is distributed under the ratio of 57.5pc to 42.5pc between the provinces and the federal government, respectively.

The NFC Award is a constitutional obligation, mentioned in the Article 160 of the 1973 Constitution. The constitution has made it mandatory for the government to compose the NFC Award at an interval extending not more than five years for the distribution of finances between the Centre and provinces.

According to Article 160 of the Constitution, after every five years, the president will constitute the NFC for a period of five years.

It is worth mentioning that soon after becoming the finance minister, Asad Umar had directed the finance secretary to initiate the new NFC Award. Later, President Dr Arif Alvi reconstituted the 9th NFC in January 2019 following which Asad Umar started negotiations with the provinces.

However, after Umar’s resignation as the finance minister, the process of the consultation came to a halt as the adviser on finance could not chair the NFC meetings owing to legal reasons.

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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