Centre demands Rs1.7tr from NFC

K-P finance adviser says federation unhappy with 42.5% share in tax pool

ISLAMABAD:

The finance adviser of the Khyber-Pakhtunkhwa government said on Wednesday that the federal government had sought a reduction of Rs1.7 trillion in provincial shares under the National Finance Commission (NFC) Award in addition to contribution to fertiliser subsidies and higher tax collection by provinces.

"The federation is not happy with its 42.5% share and has asked to review the NFC Award to take out Rs1.7 trillion from the federal divisible pool," said Muzammil Aslam, Finance Adviser to K-P Chief Minister, at a press conference in Islamabad.

To a question, the adviser said that during a meeting on the divisible pool under the chairmanship of Finance Minister Muhammad Aurangzeb a few months ago, the Centre demanded to exclude customs duty and federal excise duty from the pool of taxes and revenues shared between the federal and provincial governments.

But he maintained that no consensus was achieved during the meeting and it ended inconclusively. At present, provinces get 57.5% of the pool and the rest goes to the federal government.

The finance adviser addressed the press conference the day a story was published in The Express Tribune, stating that one of the reasons for delay in announcement of the new budget was the lack of consensus on the distribution of resources and expenditure allocations among the coalition partners.

It was reported that the federal government was looking for an additional fiscal space of Rs1.7 trillion from four provinces, mainly from Punjab and Sindh, for the new fiscal year through adjustments in the NFC Award and transferring some of the expenditures.

Aslam disclosed that the Centre had demanded a Rs200 billion share from Khyber-Pakhtunkhwa, Rs700 to Rs800 billion from Punjab, the largest beneficiary of the NFC, Rs500 billion from Sindh and about Rs100 billion from Balochistan.

For the current fiscal year, a total share of Rs8.2 trillion had been determined for provinces on the basis of Rs14.13 trillion in tax collection by the Federal Board of Revenue (FBR). However, the FBR is going to face a shortfall of over Rs1 trillion, the second consecutive year when it will be missing the target by more than Rs1 trillion.

The provincial share of Rs8.2 trillion had been estimated on the basis of distribution of revenues on account of taxes on income, wealth tax, capital value tax, sales tax on goods, customs duty, export duty on cotton and federal excise duty.

Owing to the lack of consensus on distribution of resources, the government has postponed the budget that it was planning to announce this Friday. Delegations of the Pakistan Peoples Party and the Pakistan Muslim League-Nawaz, the two key coalition partners, again met on Wednesday to resolve their differences.

The National Economic Council (NEC) meeting was also postponed as it was scheduled to meet on Wednesday to approve the new fiscal year's development budget for the Centre and four provinces along with macroeconomic targets.

The finance ministry could not prepare the budget within its fiscal space and has now asked provinces to contribute to subsidies on fertiliser and to impose additional taxes of Rs430 billion, said Aslam. He added that during a meeting, the finance minister asked the four provinces to impose Rs430 billion worth of additional taxes as the federal government had no room to slap more taxes.

All provinces were of the view that they too did not have that much space and areas to impose more taxes on people, said the adviser. He stated that during the same meeting the finance minister asked K-P to impose additional taxes of Rs35 billion.

"Later, we received a letter, asking us to impose Rs65 billion worth of additional taxes instead of Rs35 billion but we have not accepted this demand," said Aslam.

He added that the federal government also demanded from the K-P government to contribute Rs2 billion to fertiliser subsidies while Rs55 billion was demanded from the Punjab government.

The finance adviser also complained about neglecting the province in the allocation of development budget. Out of the Rs1.126 trillion federal development budget, only Rs2.2 billion was being given for K-P projects compared to Rs225 billion for Balochistan and Rs150 billion for Sindh, said Aslam.

To a question, he emphasised that there was a trust deficit between the finance ministry and the IMF, which resulted in rejection of even genuine proposals of the federal government. He said that during his meetings with the IMF, he asked the lender to look at K-P and Balochistan with different lenses as both provinces had no growth avenues and were the hardest hit by terrorism.

Responding to a question about approval of the new budget by the provincial government, K-P Information Minister Shafiullah Jan said that the chief minister of the province had filed a petition seeking a meeting with Imran Khan, the PTI founder, for finalisation of the budget.

He hoped that the meeting would be approved but if it did not happen then the senior party leadership would make the decision.