7th NFC Award : Is Sindh going to lose out after all?

The province has failed to take advantage of the Award.

There is a strong view prevailing among the economic experts of Sindh that the much trumpeted NFC Award announced in 2009 with high hopes attached to it by the people of Sindh, seems to have proved an exercise in futility.

A major achievement claimed by the PPP government was the acceptance of the exclusive right of the provinces to collect sales tax on services , as per 7th NFC Award.

However, despite the passage of about 18 months since the announcement of the NFC Award and adoption of six months since the passage of the Sindh budget for the current financial year the progress on this ‘achievement’ has remained zero.

But why? Inner circles of Sindh government are of the view that the hurdles have been created very tactfully, one after the other, by “different quarters”- belonging to federal as well as the provincial government, in the way of the implementation of this specific part of 7th NFC Award.

First, the very notification issued announcing the details of the 7th NFC Award had empowered the centre and not the provinces to collect sales tax on services. Sindh started making hue and cry and as a result of repeated representations made to the prime minister and the president, the bureaucracy of Islamabad offered to correct the said notification.

Second, in the budget documents for the current year collection of sales tax on services was once again shown as a central government activity and proceeds so collected were to be distributed among the provinces according to the old population formula.

Sindh once again started protesting. But, this time, the bureaucracy in Islamabad did not seem to be retreating even an inch. Islamabad contended that as per instructions of IMF sales tax on services is to be collected by the centre. But, when, the officials of the Sindh government directly held negotiations with IMF officials in Dubai and explained to them that it was a constitutional obligation that sales tax on services is to be collected by the province, the bureaucracy in Islamabad took the position that as per the latest directives of IMF, Pakistan was required to impose RGST on several items including services. With this “development”, the issue that provinces should collect GST on services was once again stalled.

When even this stumbling block was seemingly removed when new tax measures were announced through a presidential ordinance the Sindh government itself began dragging its feet.

In the meantime, as a part of some mysterious move, Sindh surrendered its right to impose GST on a number of services, to the centre. In the first phase, five vital services like telecommunications, financial services, advertisement, construction and franchise were surrendered to Islamabad.

In the second stage, some other services, particularly the services related to port activities, have also been surrendered to the centre. For the first five services, an agreement was signed by the centre and all the provincial governments.

When asked, a high level authority of Sindh government tried to defend the said agreement by saying that it is only for one year which was now soon to end while another high official of Sindh government, while talking to this scribe on the request of not being notified, called the said agreement a total “sell out” on the part of the Sindh government.

A technocrat of Sindh, while commenting on this said that the Sindh government was already giving extra-concessions to a Karachi based coalition partner of the PPP in Sindh and now it has started giving extra-concessions to centre as well, seemingly under the advice of the president and said that ,” Sindh is paying the price because the president of Pakistan belongs to Sindh?”

Published in The Express Tribune, April 11^th,  2011.