Provinces at loggerheads: Row over sales tax mars NFC’s maiden meeting

Sindh refuses to discuss issue; Punjab decries ‘deliberate’ delay in funds transfer.

ISLAMABAD:

The controversy over revenue sharing deepened on Friday when Sindh refused to discuss collection of sales tax on services at the first meeting of the 8th National Finance Commission (NFC), eliciting a protest by Punjab and Khyber-Pakhtunkhwa over ‘usurpation’ of their resources.

Meanwhile, Punjab also complained about the federation’s “deliberate move to delay the transfer of province’s share in federal taxes,” allegedly aimed at complicating matters for the Pakistan Muslim League-Nawaz’s government.

The meeting, headed by Finance Minister Dr Abdul Hafeez Shaikh, was attended by four provincial finance ministers, finance secretaries and non-statutory members of the NFC from the federating units.

Sales tax on services

When the issue of sales tax on services was raised by the centre, Sindh’s Finance Minister Murad Ali Shah refused to talk on the matter, said a finance ministry official.

“It is a provincial subject and the NFC is not the right forum to discuss it,” Shah said at the meeting.

Since July, the Sindh government has been collecting tax on services on grounds that it is a provincial subject. It has collected Rs9 billion from July through November. Other provinces want the federal government to collect the tax on services and distribute among them on the basis of divisible pool distribution formula.

“It is a disputed matter and warrants discussion,” federal finance minister reportedly said. Briefing the media later, he said the issue has been deferred till the next meeting.

Sindh has conveyed to the finance ministry, in advance, that tax on services cannot be discussed at NFC forum, said Dr Kaiser Bengali, Sindh’s member in the commission.

The provincial government is ready to discuss the matter but outside the NFC forum, he added.

Sindh’s collection has been depriving the other three provinces of their constitutional right, said Punjab’s Finance Minister Kamran Michael.

The federal government has assured the provinces that it would compensate them for any losses suffered due to collection by Sindh, he added.

The finance ministry has constituted a committee to resolve the issue before the next meeting, in light of the 7th NFC award deliberations, said Senator Haji Adeel, KP’s non-statutory NFC member.

During the 7th NFC award deliberations, the three provinces, besides Sindh, had proposed that receipts from the sales tax on services should be distributed according to the divisible pool formula, he added.

Delay in funds transfer

Punjab also objected over the delay in transfer of its share by the federal government, the province’s finance minister said.

“This leaves no other option but to borrow money from banks, placing extra burden on the provincial budget, Michael said.

The centre inquired about progress on agriculture tax but the federating units could not give convincing replies, said a finance ministry official.

Sindh was the only one to respond, saying it has shared a draft of the proposed tax rates with representatives of the agriculture sector, who have promised to respond within a month, the official said.

Looking back

The government also reviewed the implementation of the 7th NFC award.

In its first year of implementation, the total size of the federal divisible pool was Rs1,455 billion, of which the provinces’ share was Rs807 billion, the finance minister said. After paying an additional Rs24 billion to KP, for expenses incurred due to war on terror, a total of Rs831 billion were transferred to the provinces, he added.

Of that, Punjab received Rs417.6 billion, Sindh Rs198.2 billion, KP Rs118 billion and Balochistan Rs83 billion.

However, at the time of the announcement of last year’s budget, the federal government had indicated it would transfer Rs1,033.7 billion, Rs202.6 billion more than the actual disbursement.

KP’s Finance Minister Huymaun Khan said that last year, the federal government paid Rs15 billion on account of war on terror expenses. Under the 7th NFC award, the federal government is bound to pay 1 per cent of the total federal divisible pool to KP on that account.

Balochistan’s Finance Minister Asim Kurd Ghello said that despite having sufficient funds in hands, the provincial government was unable to spend them on development of the province due to delay in approval of the development schemes by federal bodies, like the Central Development Working Party.

Published in The Express Tribune, December 17^th, 2011.