NFC Award: Centre short-changes provinces on revenue
Federating units given Rs46 billion less than owed
Federating units given Rs46 billion less than owed. STOCK IMAGE
ISLAMABAD:
Even as the government stalls on constituting the 8th National Finance Commission, the government continues its half-hearted implementation of the 7th NFC Award, transferring Rs729 billion to the provinces during the first half of fiscal year 2015, about Rs46 billion less than budgeted.
Three of the provinces received 42.4% of their annual share of federal revenues, less than the 45% mandated by law, a gap that translates into Rs46 billion in revenues that the provinces are entitled to, but have not received, according to the latest numbers released by the federal finance ministry. Balochistan received a full 50% of its share of annual revenues, owing to the additional protections that were built into the law.
The law, called Distribution of Revenues and grants in-Aid Order, was promulgated in 2010 through a presidential order. The 7th NFC Award guarantees provinces’ share at 57.5% of net federal tax receipts. But Balochistan’s annual share has been guaranteed irrespective of tax collection by the Federal Board of Revenue.
The transfers this year were 12.7%, or Rs82.3 billion, higher than the same period last year. Provincial governments rely on federal transfers for over 90% of their total budgets, so Islamabad’s failure to disburse the full amounts often causes severe financial pain in the provinces.
In total, the federal government has budgeted transferring Rs1,720 billion to the provinces during fiscal 2015, both as part of their share in federal revenues and straight transfers. During the first half of the fiscal year, which ends June 30, the FBR collected RS1,165 billion in taxes, of which 62.5%, or Rs729 billion was transferred to the provinces. The FBR’s tax collection fell short by Rs81 billion.
Province-wise breakdown
In the first half of fiscal 2015, Punjab received Rs336 billion or 41.4% of its budgeted share of Rs813 billion. Sindh got Rs194 billion or 41.8% of its share of Rs464.1 billion. Khyber-Pakhtunkhwa (K-P) received Rs119 billion or 41.9% of its annual share of Rs284 billion. Balochistan got roughly Rs80 billion or 50% of its annual share of Rs160 billion.
Constituting the new NFC
Under Article 160 of the Constitution, the President of Pakistan has to constitute National Finance Commission before expiry of the current NFC Award. The Commission has to be constituted before May 20, five years to the date when former President Asif Ali Zardari promulgated the 7th NFC Order.
The members of the Commission will be federal finance minister, four provincial finance ministers and for technical members from each of the provinces.
Balochistan, K-P and Punjab have recommended names for nomination as technical members to President Mamnoon Hussain. Balochistan has nominated economist Kaiser Bengali while Punjab has nominated Aisha Ghaus Pasha, said a finance ministry official. K-P is said to have nominated former senator Ibrahim Khan but the finance ministry did not confirm this nomination.
The laggard is Sindh, which has not yet submitted its nomination, delaying the announcement of the 8th NFC. If the Commission constitution gets delayed, it will make it extremely difficult for the Commission to give its report for the start of new fiscal year, commencing from July.
Finance ministry officials say the President has powers to issue an interim order, extending the 7th NFC Award until Commission achieves consensus on the 8th Award. The federation will try to win back some of the concessions that it had given to the provinces under the 7th award. It cannot reduce provincial shares below 57.5%, as it has been guaranteed in the constitution. But the Centre will try to shift some of its expenditures onto the provinces.
Published in The Express Tribune, January 18th, 2015.
Even as the government stalls on constituting the 8th National Finance Commission, the government continues its half-hearted implementation of the 7th NFC Award, transferring Rs729 billion to the provinces during the first half of fiscal year 2015, about Rs46 billion less than budgeted.
Three of the provinces received 42.4% of their annual share of federal revenues, less than the 45% mandated by law, a gap that translates into Rs46 billion in revenues that the provinces are entitled to, but have not received, according to the latest numbers released by the federal finance ministry. Balochistan received a full 50% of its share of annual revenues, owing to the additional protections that were built into the law.
The law, called Distribution of Revenues and grants in-Aid Order, was promulgated in 2010 through a presidential order. The 7th NFC Award guarantees provinces’ share at 57.5% of net federal tax receipts. But Balochistan’s annual share has been guaranteed irrespective of tax collection by the Federal Board of Revenue.
The transfers this year were 12.7%, or Rs82.3 billion, higher than the same period last year. Provincial governments rely on federal transfers for over 90% of their total budgets, so Islamabad’s failure to disburse the full amounts often causes severe financial pain in the provinces.
In total, the federal government has budgeted transferring Rs1,720 billion to the provinces during fiscal 2015, both as part of their share in federal revenues and straight transfers. During the first half of the fiscal year, which ends June 30, the FBR collected RS1,165 billion in taxes, of which 62.5%, or Rs729 billion was transferred to the provinces. The FBR’s tax collection fell short by Rs81 billion.
Province-wise breakdown
In the first half of fiscal 2015, Punjab received Rs336 billion or 41.4% of its budgeted share of Rs813 billion. Sindh got Rs194 billion or 41.8% of its share of Rs464.1 billion. Khyber-Pakhtunkhwa (K-P) received Rs119 billion or 41.9% of its annual share of Rs284 billion. Balochistan got roughly Rs80 billion or 50% of its annual share of Rs160 billion.
Constituting the new NFC
Under Article 160 of the Constitution, the President of Pakistan has to constitute National Finance Commission before expiry of the current NFC Award. The Commission has to be constituted before May 20, five years to the date when former President Asif Ali Zardari promulgated the 7th NFC Order.
The members of the Commission will be federal finance minister, four provincial finance ministers and for technical members from each of the provinces.
Balochistan, K-P and Punjab have recommended names for nomination as technical members to President Mamnoon Hussain. Balochistan has nominated economist Kaiser Bengali while Punjab has nominated Aisha Ghaus Pasha, said a finance ministry official. K-P is said to have nominated former senator Ibrahim Khan but the finance ministry did not confirm this nomination.
The laggard is Sindh, which has not yet submitted its nomination, delaying the announcement of the 8th NFC. If the Commission constitution gets delayed, it will make it extremely difficult for the Commission to give its report for the start of new fiscal year, commencing from July.
Finance ministry officials say the President has powers to issue an interim order, extending the 7th NFC Award until Commission achieves consensus on the 8th Award. The federation will try to win back some of the concessions that it had given to the provinces under the 7th award. It cannot reduce provincial shares below 57.5%, as it has been guaranteed in the constitution. But the Centre will try to shift some of its expenditures onto the provinces.
Published in The Express Tribune, January 18th, 2015.