NFC to discuss high provincial share in revenue

FinMin says commission will assess possibility of taking back education, population ministries from provinces

ISLAMABAD:

Finance Minister Muhammad Aurangzeb said on Monday that the government would only discuss proposals to end a minimum constitutionally guaranteed 57.5% provincial share in taxes and take back education and population welfare ministries in the federal fold in the upcoming National Finance Commission (NFC) meeting.

Aurangzeb's comments came hours after Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto-Zardari lifted a curtain from the 27th Constitutional Amendment.

"This discussion belongs to NFC where it will take place," said Aurangzeb while refusing to comment on the government's proposals to reverse decentralisation of education and population welfare subjects and end the constitutionally guaranteed 57.5% share of provinces in the federal divisible pool. The finance minister was addressing a press conference to brief about the structural reforms undertaken during the past over one year.

Bilawal tweeted about the eight points that Prime Minister Shehbaz Sharif discussed with the PPP leadership as part of proposals for the 27th Constitutional Amendment.

The federal government has long been saying that the increase in provincial shares in revenues to 57.5% tilted the fiscal balance in favour of them 15 years ago, which led to a perpetual federal fiscal deficit.

Minister of State for Law Barrister Aqeel Malik, while speaking to a private news channel, said that the NFC required political consensus, "which we are developing with our allies". He added that the proposed amendment also included a provision about the return of education and population planning subjects to the federation

Responding to a question about the exit of foreign companies, the finance minister attributed it to the change in the global business strategies of multinational firms. However, he added that the international and local investors were also taking interest in business ventures in Pakistan.

To a question about tough economic conditions, Adviser on Privatisation Muhammad Ali said that it takes time to build investor confidence and change their perception. "The government is trying to address concerns of the business community," he said.

Last week, the prime minister established eight working groups to address the business community's concerns, who claimed that exports were about to collapse. "We want to move forward in consultations" with the business community, said the finance minister.

FBR Chairman Rashid Langrial said that he had sidelined low-integrity officers, categorised as C, D and E, from key positions and appointed officers of good reputation having A and B categories. He recalled that in July 2023, 74% of key FBR positions had been occupied by the Inland Revenue officers of C, D and E categories, which has now been reduced to just 11%. Similarly, in July 2023, 89% of key customs positions had been occupied by low-category officers, which has now been slashed to 6%.

The FBR chairman stressed that they were targeting to push Pakistan's tax-to-GDP ratio to 18% by 2028. "Of this, 15% will be achieved by the FBR and 3% by provinces," he said. "There is a lot of soul searching, which has to take place at the provincial level."

Langrial said that the number of individual tax filers had increased by 18% this year compared to last year, going up from 4.9 million to 5.8 million. "This is a significant increase," he said. The FBR chief said that despite a tax shortfall of nearly Rs275 billion in the July-October period, the government does not intend to impose contingency measures. The FBR provisionally collected Rs3.834 trillion against the target of Rs4.109 trillion.

He added that the tax gap of top 1% income earners was Rs1.2 trillion, while the total income tax gap stood at Rs1.7 trillion. In the last fiscal year, the tax-to-GDP ratio increased 1.5% but he admitted that more than half of it was because of additional tax measures.

Finance Secretary Imdadullah Bosal said that the direct contributory pension programme for civilian employees had been implemented since last year. He added that the government was in discussions with the armed forces for implementing the contributory pension, although the cabinet had approved the deadline of July 2025.