Distribution of resources in the NFC Award-2010 is biased towards Provinces at the cost of the Federation.
The federal share is only 42.5% vs 57.5% of Provinces along with additional grants to Provinces amounting to around Rs. 1 Trillion. As per revised estimates of FY 2018-19, the following additional benefits were given to Provinces:-
• Straight transfers (development surcharge on Natural Gas and Royalty on crude oil – Rs 94 Bn) – distributed solely on the basis of the collection.
• Balochistan has been guaranteed revenues each year based on annual budgetary projections and not actual collection. Balochistan got 100% share from divisible pool whereas other Provinces got only 91% share due to shortfall in revenue collection.
• Sales Tax on Services has been declared as a Provincial subject. Provinces got around Rs 237 Bn – Sindh (Rs 120 Bn), Punjab (Rs 100 Bn), KP (Rs 11 Bn), and Balochistan (Rs 6 Bn).
• GB and AJK also remain additional responsibility of Federal Government (AJK – Rs 90 Bn and GB – Rs 50 Bn = Total Rs 140 Bn).
• Sindh got additional Rs. 14 Bn as grant in aid (on account of Octroi/ Zilla tax).
• 1% of Divisible Pool assigned to KP for War on Terror (Rs 37 Bn).
• Specific Grants are provided by Federal Government in time of unforeseen calamities.
• Provinces collect taxes on Agriculture and Real Estate.
❖ With existing resources, the Federal Government can hardly meet Debt Servicing and Development expenditures – rest everything including Defence, subsidies, and Allied expenditures remain on borrowings.
❖ Due to the availability of funds from the Federal Government, Provinces suffer from dependency syndrome – unwilling to mobilize their own resources as they can get enough without much taxation efforts. As per Revised Estimates Budget FY 2018-19, Tax collected by Punjab – Rs 208 Bn, Sindh – 221 Bn, KP – 20 Bn, Balochistan – 8 Bn. However, they collect non-tax revenues.
❖ Provinces don’t have to pay any liability in Federal Deficit/ losses, grants to GB/ AJK, and other expenditures.
❖ This arrangement is unsustainable for the Federal Government due to increasing Budget Deficit that is likely to rise to Rs. 4 Trillion in current Financial Year.
❖ Above in view, NFC Award needs re-negotiation.
The focus may be diverted on rationalization of the NFC Award, to which both PPP and PML-N are averse to develop any consensus. There is a need to develop consensus on the review of the NFC Award. Following may be deliberated/ discussed:-
❖ Divisible Pool may be divided into three portions i.e. Federal Government, Provinces, and Local Governments.
❖ Develop consensus with provinces to share all liabilities from Divisible Pool (such as debt servicing, defense expenditures, grants to AJK/ GB, losses of State-Owned Enterprises, and subsidies).
❖ Expenditure on Trans-Provincial functions (such as the construction of roads/ highways, transmission lines, etc) performed by the Federal Government must be shared be Provinces as well.
❖ Freezing share of provinces at current level FY 2019-20 and an additional amount to be distributed according to pre 7th NFC Award Formula.
❖ Doing away with Proviso 3A in Article-160 through Constitutional Amendment, which is in conflict with the overall theme of Fiscal Federalism and Redefine term “Share” as an amount in ‘Absolute Term (figure)’ – leading to “Freezing shares of Provinces at the current level in monetary terms.
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