Distributing revenue: Provinces’ share in federal taxes raised to Rs1.502t

Share 23% higher than estimates for outgoing fiscal year; 3% higher than this year’s original allocation .

ISLAMABAD:

The share of the provinces in federal taxes has been increased to Rs1.502 trillion for the new financial year – Rs281 billion higher or 23% over the downward revised estimates for the outgoing year – amid looming uncertainty over Federal Board of Revenue’s ability to achieve the tax target.

The provinces’ shares in federal taxes have been determined under the 7th National Finance Order which came into force in 2010-11. Population remains the single largest criterion to determine the provinces’ respective shares, as 82% of the pool is allocated on the basis of population. The other criteria are poverty and backwardness, which determine 10.2% of the pool. Revenue collection and inverse population density determine 5% and 2.7% of the share respectively.

According to Finance Minister Ishaq Dar, the increased transfers will help provinces invest more for the welfare of the people.



Budget documents show that the Rs1.502 trillion provincial share is just Rs43 billion or 3% higher when compared with this year’s original shares of the provinces. Due to the anticipated Rs374 billion shortfall in FBR’s tax collection target for this year, the provinces’ share has been drastically cut by Rs238 billion or 16.3%, adversely affecting their fiscal frameworks.

When the outgoing fiscal year’s budget had been finalised, the federal government had worked out the provinces’ share to be Rs1.459 trillion based on the Rs2.381 trillion tax target. However, due to dismal performance, FBR’s collection target was revised down to Rs2.007 trillion, according to the documents.

For the new fiscal year, FBR’s target has been set at Rs2.475 trillion. Achieving this target, however, will depend upon the new government’s will to reform the dysfunctional board, which has been plagued by corruption and nepotism.

In fiscal year 2013-14, Punjab will receive Rs708.7 billion as its share in federal taxes. It is Rs130.7 billion or 22.6% higher than revised estimates. However, as compared to original estimates the new projection is less by Rs1.6 billion or 0.3%.

Sindh will get Rs400.1 billion, showing an increase of Rs125.7 billion or 23% over the revised estimates. Compared with the original budget, Sindh will get Rs26.4 billion or 7% more than this year’s receipts.

Khyber-Pakhtunkhwa’s share for the next year has been set at Rs251.5 billion, which is Rs47.5 billion or 23.3% more than this year’s revised estimates. But it is Rs10 billion or 4.2% higher when compared with original budget estimates.

Balochistan will receive Rs142 billion next year, which is Rs29 billion or 25.7% up from this year’s revised estimates. There was no major impact of revenue shortfall on Balochistan, as it gets its share on the basis of the original target due to constitutional protection.

For the outgoing fiscal year, Balochistan’s share had been determined at Rs133.3 billion including straight transfers. Despite massive shortfall in collection, the province will receive Rs113.2 billion as the Rs20.23 billion shortfall was on account of meagre recovery of royalties and gas surcharges.

Published in The Express Tribune, June 13^th, 2013.