The fifth meeting of ninth National Finance Commission (VFC) award turned out inconclusive. Agreement could not be arrived at crucial issues like enhancing the efficiency of Federal Bureau of Revenue for meeting the target of tax collection; granting autonomy to provinces in revenue generating decisions and allocation of 3 percent share from the federal divisible pool of tax revenue as a part of financial arrangements for the merged tribal districts of erstwhile FATA. Consequently the next year budget will be presented under the current NFC formula which was decided in 2010 and it has the legal mandate till 2020.
A senior PPP leader and former Chairman Senate Mian Raza Rabbani has alleged that the federal government intends to reduce the share of province in the next NFC award by 10 percent from the existing 57.5 percent which was decided in the 7th NFC award. He said that allocation of resources to Gilgit Baltistan, Azad Kashmir and merged district through deduction from the agreed share of the four federating units amounts to violation of Article 160 (3) of the constitution.
Unlike the provinces of Sindh and Punjab, the revenue generation capacity of Khyber Pukhtunkhwa and Baluchistan is limited. Khyber Pukhtunkhwa is at double disadvantage because it is not getting full amount of net hydel profit as per A.G.N Qazi formula plus the instilments of accumulated arrears. The ministry of agriculture has been devolved to provinces but the federal government still collects federal excise duty on tobacco dry leaves of Virginia, Nicotiana Tabacum and Nicotiana Rustica species during sale at the centers of tobacco companies. The province is often deprived of its share from this levy. Likewise, federal excise duty is collected from cigarette industry in the province.
The poor performance of FBR, particularly of Inland Revenue Services department has resulted in revenue short fall of over Rs.220 billion. It has failed in netting the non-filers into the tax net, plugging the loopholes of tax evasion by the existing taxpayers and taking stern action against Benami accounts and property holder despite the operationalisation Benami Act, 2017 by the present government. The State Bank report reflecting the surge in budget deficit despite significantly slashed Public sector Development Programme negates the clams that economy is now moving on the path of revival.
Regressive fiscal measures are still on for revenue generation to meet the widening resource gap. OGRA has suggested about Rs. 11.17 per litre increase in the price of high speed diesel, Rs. 11.9 in petrol, Rs. 6.49 in light diesel oil and Rs.6.65 in kerosene oil. Moreover, tools of deficit financing including excessive borrowings from banks and printing additional currency also continue to bridge the resource gap. These measures fuel inflation and the central bank report states the rate of inflation was the highest in February since June, 2014, attributing it mainly to hikes in the tariffs of electricity and gas. Rising inflation has so far been attempted to be controlled with monetary measures alone. Increase in bank rate and open market operations do not produce the desired results unless buttressed by fiscal measures by way of direct taxation. How long the agriculture income of feudal class shall be treated a holy cow by enjoying exemption from direct taxation. Likewise, the profits earned at stock exchange transactions are not accurately taxed. Hopefully, the federal government will formulate progressive tax policy with more focus on direct taxation before achieving consensus on new NFC award.
