Centre seeks Rs1.7 trillion fiscal space from provinces, KP finance adviser says

Khyber-Pakhtunkhwa Finance Adviser Muzammil Aslam said that the federal government had sought Rs1.7 trillion in fiscal space from the provinces through proposed changes in resource sharing under the National Finance Commission (NFC) Award, along with provincial contributions to fertiliser subsidies and higher provincial tax collection.

Addressing a press conference in Islamabad, Aslam said the Centre wanted to review the NFC Award and reduce provincial shares from the federal divisible pool. He said the federal government was not satisfied with its 42.5% share, while provinces currently receive 57.5% of the divisible pool.

According to Aslam, the issue was discussed a few months ago in a meeting on the divisible pool chaired by Finance Minister Muhammad Aurangzeb. He said the Centre proposed excluding customs duty and federal excise duty from the pool of taxes and revenues shared between the federal and provincial governments.

Aslam said no consensus was reached in the meeting and the discussions ended inconclusively.

He claimed the federal government had sought Rs200 billion from Khyber-Pakhtunkhwa, Rs700 billion to Rs800 billion from Punjab, Rs500 billion from Sindh and around Rs100 billion from Balochistan.

The remarks came as the federal budget announcement was delayed amid discussions over resource distribution and expenditure allocations among coalition partners.

The federal government had earlier planned to present the budget this Friday, but the announcement was postponed due to lack of consensus on resource distribution.

Delegations of the Pakistan Peoples Party and Pakistan Muslim League-Nawaz met again on Wednesday to address differences over budget-related matters.

The National Economic Council (NEC) meeting, scheduled for Wednesday to approve development budgets and macroeconomic targets for the Centre and provinces, was also postponed.

Aslam said the Finance Ministry could not prepare the budget within its available fiscal space and had asked provinces to contribute to fertiliser subsidies and impose additional taxes.

He said the Finance Minister asked the four provinces to generate Rs430 billion through additional taxes, saying the federal government had no room to impose further taxes.

According to Aslam, provinces told the Centre that they also lacked space and tax areas to raise such revenue.

He said Khyber-Pakhtunkhwa was initially asked to impose Rs35 billion in additional taxes.

He added that the province later received a letter asking it to raise Rs65 billion through additional taxes, but the provincial government had not accepted the demand.

Aslam also said the federal government had asked Khyber-Pakhtunkhwa to contribute Rs2 billion to fertiliser subsidies, while Punjab was asked to contribute Rs55 billion.

For the current fiscal year, the provinces’ total share had been estimated at Rs8.2 trillion on the basis of Rs14.13 trillion in Federal Board of Revenue tax collection.

However, the FBR is expected to face a shortfall of more than Rs1 trillion, the second consecutive year in which it is likely to miss its target by that amount.

The provincial share of Rs8.2 trillion was estimated on the basis of revenue distribution from taxes on income, wealth tax, capital value tax, sales tax on goods, customs duty, export duty on cotton and federal excise duty.

Aslam also criticised the allocation of federal development funds for Khyber-Pakhtunkhwa. He said that out of the Rs1.126 trillion federal development budget, only Rs2.2 billion was being allocated for K-P projects, compared with Rs225 billion for Balochistan and Rs150 billion for Sindh.

Responding to a question, he said there was a trust deficit between the Finance Ministry and the International Monetary Fund, which had led to rejection of even genuine proposals from the federal government.

He said that during meetings with the IMF, he asked the lender to consider Khyber-Pakhtunkhwa and Balochistan separately because both provinces had limited growth avenues and were affected by terrorism.