ISLAMABAD: The provinces are likely to object to the deduction of their respective shares in the recently notified 10th National Finance Commission (NFC) after the Centre sought more money under the heads of defence and disaster management.
Aside from the terms of references (TORs), the Sindh government has even questioned the constitution of the commission. Officials believe that the other provinces will also follow in Sindh’s footsteps.
“When it comes to shares of revenue under NFC, even the provincial governments of ruling party PTI will not compromise on their respective shares,” said the official adding that “we have experienced in the past governments… the provincial representatives have objected to more shares to center.”
“Though the federal government in consultation with some ‘important institutions’, has added some new ToRs to discuss and pressurise the provincial governments to give more shares to the Center through the NFC without going for a change in the 18th Amendment, the move is likely to backfire.
According to the sources, apart from International Monetary Fund (IMF), the armed forces and various other quarters, also wanted to rebalance the transfer of a larger chunk of the divisible pool resources to the provinces under 7th NFC Award. However for a constitutional obligation and objection from provinces, the division of revenue continued the same in the past 10 years despite failure of two NFC awards (8th and 9th NFC).
In addition to defence expenditures, the federal government also demanded shares under the head of the assessment of total public debt and allocation of resources for its repayment, losses incurring to state-owned enterprises (SOEs) and development of Azad Kashmir and Gilgit-Baltistan.
A Ministry of Finance official that the government would take provinces on board and that it was premature to comment on shares that center may get after the new NFC Award.
However, Dr Kaiser Bengali, who had represented provinces in the NFC, said the Centre has planned to deduct up to 15 per cent from the provinces’ shares. After the 18th Amendment, the Federal Divisible Pool (FDP) was being distributed under the ratio of 57.5 percent to 42.5 per cent among the provinces and the federal government, respectively.
The Centre claims that under the existing revenue distribution mechanism, the federal government is barely left with funds to pay for its two non-discretionary expenses –debt servicing and defence. It has to approach lenders to finance even its administrative and development expenditures.
The NFC Award is a constitutional obligation, which is clearly mentioned in 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 the provinces.
According to Article 160 of the Constitution, after every five years, the president will constitute the NFC for a period of five years.
The 9th NFC was constituted on April 24, 2015 and reconstituted a couple of times in 2016, 2018 and 2019 owing to change in governments and replacement of non-statutory members, but it failed to conclude a new award as no meaningful and structured dialogue could be sustained.
The 7th NFC Award announced in 2009 continued with annual extensions and remains in place even now instead of the constitutional term of five years that came to an end on June 30, 2015. The Constitution promises that provincial shares in each NFC award could not be reduced.
Under the 7th NFC Award, the four provinces are collectively entitled to 57.5 percent of divisible pool taxes, besides the revenue from income tax, wealth tax, capital value tax, general sales tax, customs duties and federal excise duty.
The provincial governments get their horizontal shares on the basis of population, poverty, revenue collection and inverse population density, allowing Punjab to get 51.74pc, Sindh 24.55pc, Khyber Pakhtunkhwa 14.62pc and Balochistan 9.09pc share.
