There is a sense of déjà vu whenever there is talk of a new National Finance Commission award. It has been 11 years since the last award was finalised and six since the term of that award expired. In the time since, two successive governments have so far struggled to break the logjam and figure out a mutually palatable formula for all four provinces and the Centre. The merger of the erstwhile tribal areas into Khyber-Pakhtunkhwa has also complicated the process further.
At the heart of the impasse seems to be our tax authorities’ inability to figure out a way to increase revenues. When the last NFC award was finalised in 2010 and the share of the provinces increased to 57.5%, the move was predicated on the expectation that the Federal Board of Revenue would be able to increase its tax collection. That has not happened for a whole host of reasons, some of which are institutional and others simply cultural. Meanwhile, the provincial governments themselves have cornered themselves in a precarious financial position.
Now, we have the federal government on one side, trying to reclaim a bigger share than before to meet its own spending needs. On the other, the provinces, even if they were willing, seem unable to let go. As complicated and unlikely it will be to bring about, our present revenue generation and collection setup needs a drastic rethink. In many ways, our leaders at various levels need to start questioning the entire philosophy around how our government is structured.
Flagging revenues and the inability to match government spending needs our issues by no means unique to Pakistan. But compared to elsewhere, whether it be the Centre or provinces, our government bureaucracy is significantly bloated. At the same time, a major factor behind the inability to increase revenues is our leaders’ own hypocritical approach to taxes along with a convoluted mechanism that disincentives the common person further.
Until we begin fixing these issues, whether an agreement on the NFC award is reached or not would only serve to delay the inevitable. One hopes there is some concern for sustainability among the talks currently taking place.
Published in The Express Tribune, February 21st, 2021.
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