The NFC debate

The federal government should find itself in a difficult position to enhance the share of provinces

The National Finance Commission (NFC) has finally had a meeting to set agenda for resource distribution between the Centre and provinces for the next five years. While the details of the meeting have not been publicly known, media reports say that participants agreed in principle that the population census of 2017 would form the basis for the resource-distribution formula. It was also agreed that the federal government would involve the provinces in its negotiations with the IMF.

The Wednesday meeting was held amid speculations that the federal government intended to withdraw the powers of provinces to collect sales tax on services as well as income tax on agriculture. Punjab and Sindh have, however, publicly declared that they would strongly resist any such move by Islamabad. The Sindh chief minister the other day even took exception to the federal government’s recent decision to determine property valuation in some urban centres of the country. Sindh had also been complaining about receiving less than its due share from the divisible pool. The federal government, reportedly failing in its targets of revenue generation, should find itself in a difficult position to enhance the share of provinces. According to the Constitution, “The share of the provinces in each Award of National Finance Commission shall not be less than the share given to the provinces in the previous Award.” In fact, the last NFC award that was signed in December 2009, after a gap of 20 years, envisaged substantial reduction in the share of the federal government from the divisible pool, besides authorising provinces to collect sales tax on services and agricultural income tax. Another landmark decision taken in the last award related to population not being the sole basis of resource distribution among federating units. Poverty and backwardness are two other factors that have been taken into consideration for resource distribution from the divisible pool.

However, if the initial reports about the Wednesday meeting agreeing to take 2017 population census as basis for the next NFC award are correct, it is unlikely to be welcomed by some political parties which dispute census results and claim that they were manipulated, especially in case of Karachi.

Published in The Express Tribune, February 8^th, 2019.

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