PHOTO: REUTERS
As the president constituted the 9th National Finance Commission to distribute resources among the federating units, the federal government has proposed the provinces share the cost of counterterrorism efforts and disaster management.
President Mamnoon Hussain constituted the 9th NFC on Friday to determine the fresh award for distribution of federal taxes between the Centre and the provinces for the next five years, according to an official handout. The finance ministry also issued the notification of the commission’s formation in addition to its terms of reference.
For the first time, the federal government has raised the issue of its expenses on the fight against terrorism and management of natural disasters on the commission’s agenda, with the aim that the provinces share the growing burden with the Centre. The issue is likely to be the thorniest one the 10-member commission will be discussing in the months ahead.
The commission’s first meeting will be held next Tuesday. But no meaningful discussions are expected, as chances are that the Centre and the provinces may unanimously recommend the president extend the duration of the current award for another year. The president has the power to issue an interim order, extending the existing NFC award until the commission achieves a consensus on a new award.
The federation may even try to win back some of the concessions it had given to the provinces under the last award. As it cannot reduce the provincial share below the last award’s level of 57.5% of the net federal tax collection, the federal government has for the first time decided to try to convince the provinces to share responsibilities in areas that fall in its domain.
Apart from the share of the four federating units, the federal government also bears the expenditures of Azad Kashmir, Gilgit-Baltistan and the Federally Administered Tribal Areas. This reduces the Centre’s share to only 35%. From this share of the total taxes, the government meets all obligations, including defence and debt. These expenses are expected to increase in the coming years, making it impossible to ensure a sustainable federal budget deficit.
On account of war against terrorism, the government has estimated losses worth over $100 billion in the past 14 years. The Zarb-e-Azb operation and last year’s floods have also taken a heavy toll on the federal budget, forcing the government to seek roughly $2 billion in assistance from international development partners.
Interestingly, the 9th NFC has been notified just two months before the expiry of the existing award, which ends on June 30.
The federal finance minister will head the commission, which will comprise four provincial finance ministers and four technical members, one each from the four federating units. The president has for the first time included the federal finance secretary as an ‘expert’. The president enjoys the power to appoint any member, subject to consultations with the four provincial governors. However, it is not clear whether he consulted the governors or not.
According to NFC’s terms of reference, the commission will discuss distribution of taxes on income, including corporation tax, taxes on sale and purchase of goods imported, exported, produced, manufactured or consumed. Export duties, excise duties and other taxes specified by the president will be on the agenda of the NFC. It will also deliberate over the authority of the federal and the provincial governments regarding borrowing from domestic and foreign sources.
Published in The Express Tribune, April 25th, 2015.
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