Revenue targets: Centre’s dashed expectations left provinces in the red

Revenue shortfall led to less transfers to provinces from federal divisible pool.

ISLAMABAD:

The federal government’s unrealistic estimates for tax collection left the provinces’ coffers reeling after the federating units received Rs113.4 billion less than their projected share under the national divisible pool.

The Federal Board of Revenue missed the tax collection target by a whopping Rs71 billion, and collected a total of Rs1.881 trillion.

The revenue shortfall meant less transfers to the province and, coupled with heavy expenditures on development projects, pushed the budgets of three provinces in the red, according to the fiscal operations summary for the financial year 2011-12. Except Balochistan, all provinces closed the last fiscal with a deficit.

Against projected provincial share of Rs1.203 trillion, the federal government transferred Rs1.089 trillion to the four provinces, a shortfall of Rs113.4 billion, or 10.6% of the projected amount.

The provinces heavily rely on federal revenues to meet their expenses. In the fiscal 2011-2, the four provinces met 80% of their total expenses out of their share in the federal divisible pool.

Blaming provinces

The centre had earlier blamed the provinces for the historic budget deficit of Rs1.76 trillion – that assertion may not be entirely true in the light of the new information.

The federal government had projected that provinces would save Rs125 billion, keeping the overall budget deficit at 4%. That, however, was premised on Rs1.203 trillion transfers to the provinces, which did not materialise due to revenue shortfall.

Violating Finance Order

The federal government also violated the National Finance Order 2010, since it failed to transfer a guaranteed amount to Balochistan, according to the fiscal operations summary.

Against Rs110.2 billion, the federal government transferred Rs107.4 billion to Balochistan – Rs2.8 billion, or 3%, less than guaranteed. Despite less transfers, the provincial government managed to save Rs19 billion with a total income of Rs134.2 billion, against expenses of Rs115.2 billion.

In an effort to address the grievances of the least-developed province, the federal government had enshrined in the Finance Order that Balochistan will receive its share in the divisible pool based on the budgetary projections, irrespective of the actual collection.

The other three provinces get their share on the basis of actual revenue receipts.

The finance ministry spokesman was not available for comment.

Punjab

The country’s most-populated province received Rs58.4 billion, or 10% less than its budgeted share. The federal government transferred Rs518.4 billion to the provincial government against its share of Rs576.8 billion, according to the finance ministry.

The province’s total revenues remained at Rs593.9 billion against expenditures of Rs602.9 billion, leaving a deficit of Rs9 billion.

Sindh 

Sindh’s fiscal position was the worst among the four provinces, largely because of 12% less than projected transfers. Against a promised share of Rs324.4 billion, the federal government transferred Rs285.2 billion to Sindh – a gap of Rs39.2 billion.

The provincial budget deficit widened to Rs28.5 billion, since its expenses amounted to Rs412.3 billion, against Rs383.8 billion in income.

Khyber-Pakhtunkhwa

The Khyber-Pakhtunkhwa government received Rs13 billion less than its projected share in the federal divisible pool. This led to a deficit of Rs3.8 billion – the provincial government’s total expenses remained at Rs225.8 billion against an income of Rs222.1 billion.

Published in The Express Tribune, September 2^nd, 2012.