Provinces share in federal taxes increases to Rs1.720tr

Allocation will depend on FBR’s ability to meet Rs2.810tr tax target

ISLAMABAD: The provinces’ share on account of federal taxes and straight transfers has been increased to Rs1.720 trillion for the new financial year — higher by Rs307 billion, or 21.7%, over the downward revised estimates for the outgoing year.

However, looming uncertainty over the Federal Board of Revenue’s ability to achieve the proposed Rs2.810 trillion tax target will determine the actual amount the provinces will receive during the course of the fiscal year 2014-15.

The proposed amount of Rs1.720 trillion to be distributed among provinces is Rs208 billion or 13.8% higher over this year’s original share of Rs1.502 trillion. Due to the anticipated Rs200 billion shortfall in FBR’s tax collection target for this year, the provinces’ share has been drastically cut, adversely affecting their fiscal frameworks. The revised provincial share for the outgoing fiscal year is now Rs1.413 trillion.

Out of the total Rs1.720 trillion, Rs1.580 trillion will be given to provinces on account of their 57.5% share in federal taxes, known as federal divisible pool. In the outgoing fiscal year, the revised share of the provinces is Rs1.287 trillion. On account of straight transfers, the four provinces will receive Rs137.8 billion as against the revised estimates of Rs124.3 billion of the outgoing fiscal year.

The provinces’ shares in federal taxes have been determined under the 7th National Finance Order, which came into force in 2010-11. Population remains the single largest criterion to determine the provinces’ respective shares, as 82% of the pool is allocated on the basis of population. Other criteria include poverty and backwardness, which determines 10.2% of the pool, while revenue collection and inverse population density determines 5% and 2.7% of the share, respectively.

According to Finance Minister Ishaq Dar, the increased transfers will help provinces invest more for the welfare of people.

For the new fiscal year, FBR’s target has been set at Rs2.810 trillion. Achieving this target, however, will depend upon the new government’s will to reform the dysfunctional board, which has been plagued by corruption and nepotism. Even before approval of the budget from Parliament, the FBR had informed the government it could collect Rs2.7 trillion at best.

In fiscal year 2014-15, Punjab will receive Rs812.7 billion as its share in federal taxes — Rs153.8 billion or 22.1% higher than revised estimates. However, as compared to original estimates, the new projection is Rs104 billion or 14.5% higher.

Sindh will receive Rs464.1 billion, showing an increase of Rs84 billion or 22.1% over the revised estimates. Compared with the original budget, Sindh will receive Rs64 billion or 16% more than this year’s receipts.

Khyber-Pakhtunkhwa’s share for the next year has been set at Rs283.6 billion, which is Rs48.6 billion or 20.6% more than this year’s revised estimates. But it is Rs32.2 billion or 12.7% higher compared to the original budget estimates.