Beyond the census, NFC awaits
NFC should ponder over whether it is time this system of centre to provincial financial transfers should change
The writer is a research associate at the Policy Research Institute of Market Economy
Now that the provisional results of the census are out, a series of processes should be about to set in motion; reallocation of provincial quotas in federal government jobs, delimitation exercise by the Election Commission, legislation enabling the increase in the number of parliamentarians and the redistribution of federal divisible pool among the provinces. While the common man is not much concerned about the quantum of federal transfers to provinces, it is the one thing that most affects his access to public services — especially health and education.
Announcing a new National Finance Commission (NFC) Award after every five years is a constitutional requirement. If the federal cabinet fails to announce a new NFC Award when it is due, it is quite simply violating the Constitution. The 7th NFC Award was announced in 2010 and expired in 2015. To this date, no new award has been announced.
There are quite a few things that the 9th NFC will have to deliberate over. It has to decide the share of the federal government in the gross divisible pool and the criteria to be used for allocating resources between provinces need to be agreed upon. Thereafter, it has to decide what data figures would be plugged in the resource distribution equation. For example, if poverty level is going to be a criterion, the commission needs to achieve a consensus on the data source to be used for poverty figures. This is where the deadlock nature of the NFC comes in; all decisions have to be unanimous.
In the 7th NFC Award, the criteria used for allocating the federal divisible pool among the provinces included population, poverty/backwardness, revenue generation and inverse population density. As per the provisional census results, during the past 19 years, our population has increased by a massive 57%. The weightage assigned to population as a criterion in the last NFC Award was a hefty 82%. As per the formula, it is in the interest of the provinces to let population growth continue unabated, as greater population results in greater share of the federal divisible pool. Similarly, poverty/backwardness has a weightage of 10.3% in the 7th NFC Award formula. Using this formula, we are actually incentivising population growth and the proliferation of poverty.
This time around, the commission should think of introducing new criteria which incentivise the provinces to achieve the UN SDGs. For this, literacy rate, average life expectancy at birth, access to clean water, etc, can be included as criteria for resource distribution. This will incentivise the provincial governments to strive towards attainment of better results.
The NFC isn’t just about resource distribution but it is also functioning as a tool to achieve greater provincial autonomy. The 7th NFC award raised the share of provinces from 47.5% to 56% of the federal divisible pool; and the 18th constitutional amendment restricted the federal government from decreasing the share of the provinces further than what was awarded to them under the 7th Award.
Also under the 18th amendment, the power to collect GST on services was transferred to the provinces. This landmark legislation has borne good results. Previously, when the FBR collected GST on services on behalf of the provinces, the K-P government got Rs4.7 billion in 2012, as its share. Post devolution, last year the K-P Revenue Authority collected Rs10 billion as GST. Similarly, when the FBR collected taxes for Sindh at the rate of 17%, it transferred Rs18.28 billion to the province for the year 2010-2011. The very next year, Sindh’s Board of Revenue collected taxes at the rate of 16% and collection reached to Rs25 billion. Another issue that the NFC should ponder over is whether it is time this system of centre to provincial financial transfers should change, ie, the provincial governments should collect taxes and transfer a share to the federal government.
Published in The Express Tribune, August 30th, 2017.
Announcing a new National Finance Commission (NFC) Award after every five years is a constitutional requirement. If the federal cabinet fails to announce a new NFC Award when it is due, it is quite simply violating the Constitution. The 7th NFC Award was announced in 2010 and expired in 2015. To this date, no new award has been announced.
There are quite a few things that the 9th NFC will have to deliberate over. It has to decide the share of the federal government in the gross divisible pool and the criteria to be used for allocating resources between provinces need to be agreed upon. Thereafter, it has to decide what data figures would be plugged in the resource distribution equation. For example, if poverty level is going to be a criterion, the commission needs to achieve a consensus on the data source to be used for poverty figures. This is where the deadlock nature of the NFC comes in; all decisions have to be unanimous.
In the 7th NFC Award, the criteria used for allocating the federal divisible pool among the provinces included population, poverty/backwardness, revenue generation and inverse population density. As per the provisional census results, during the past 19 years, our population has increased by a massive 57%. The weightage assigned to population as a criterion in the last NFC Award was a hefty 82%. As per the formula, it is in the interest of the provinces to let population growth continue unabated, as greater population results in greater share of the federal divisible pool. Similarly, poverty/backwardness has a weightage of 10.3% in the 7th NFC Award formula. Using this formula, we are actually incentivising population growth and the proliferation of poverty.
This time around, the commission should think of introducing new criteria which incentivise the provinces to achieve the UN SDGs. For this, literacy rate, average life expectancy at birth, access to clean water, etc, can be included as criteria for resource distribution. This will incentivise the provincial governments to strive towards attainment of better results.
The NFC isn’t just about resource distribution but it is also functioning as a tool to achieve greater provincial autonomy. The 7th NFC award raised the share of provinces from 47.5% to 56% of the federal divisible pool; and the 18th constitutional amendment restricted the federal government from decreasing the share of the provinces further than what was awarded to them under the 7th Award.
Also under the 18th amendment, the power to collect GST on services was transferred to the provinces. This landmark legislation has borne good results. Previously, when the FBR collected GST on services on behalf of the provinces, the K-P government got Rs4.7 billion in 2012, as its share. Post devolution, last year the K-P Revenue Authority collected Rs10 billion as GST. Similarly, when the FBR collected taxes for Sindh at the rate of 17%, it transferred Rs18.28 billion to the province for the year 2010-2011. The very next year, Sindh’s Board of Revenue collected taxes at the rate of 16% and collection reached to Rs25 billion. Another issue that the NFC should ponder over is whether it is time this system of centre to provincial financial transfers should change, ie, the provincial governments should collect taxes and transfer a share to the federal government.
Published in The Express Tribune, August 30th, 2017.