Khaleeq Nazar Kiani
The consensus on the distribution of resources is a gigantic task. In the last 50 years, only four NFC awards have been announced, while the recommendation of NFC after every five years is a constitutional obligation.
Present Government constituted 10th NFC in May 2020 under Article 160 (1) of the Constitution of Pakistan. It is a constitutional body to give recommendations about the net proceeds of the taxes, grants in aid, the exercise of borrowing powers between the federal and provincial governments, and any matter relating to finance referred by the President.
The tax revenue distributed between the Center and provinces is placed in the divisible pool. It consists of income tax, corporation tax, sale purchase of goods, export duty on cotton, and such duties and taxes specified by the President.
The non-divisible taxes are WWF, Export development surcharge, and1% of income tax on account of income tax paid out of the consolidated federal fund. The royalty on crude oil/Natural gas, Gas Dev surcharge, and Excise duty on natural gas are the straight transfer.
Historically except 7th NFC award, the resource distribution was always a point of difference and deadlock between the Center and provinces. East Pakistan separated over unequal resource distribution. May be wrong, but at that time, it was a famous public speaking of East Pa-kistan’s political leadership that the jute aroma co-mes from Islamabad’s roads.
Before partition, the resource distribution was under the Niemeyer award, which continued until 1952. Then Sir Jeremy Raisman formula was adopted, and the resources were distributed with the following ratio:-
East Pakistan: 45%
Punjab: 27%
Sindh: 12%
KPK: 4%
Bahawalpur: 0.6%
Khairpur: 0.6%
Balochistan: 2.8%
In 1955 one unit was declared, and in two awards (1961&1964), the share distribution between East and West Pakistan was 54 and 46 percent. One unit abolished in 1970, and 46% of West Pakistan distributed between the provinces with the following ratio:-
Punjab: 56.50%
Sindh: 23.50%
NWFP: 15.50%
Balochistan: 4.50%
After the promulgation of the 1973 constitution, the first NFC award was announced in 1974 with a vertical distribution ratio of 20:80. At that time, only three taxes, income tax, sales tax, and export duty, were in the divisible pool. As the population was the sole criterion for distribution, Punjab’s share had increased from 56.50 percent (1970 award) to 60.25 percent by deducting the share from the other three provinces.
Punjab: 60.25%
Sindh: 22.50%
NWFP: 13.39%
Balochistan: 3.86%
The 2nd NFC (1979) & 3rd NFC (1985) failed to gain consensus. However, after the 1981 census, the provincial share of Sind and Balochistan increased from 22.5% and 3.86% to 23.34% and 5.30%.
In, 1990 after 16 years, the Nawaz Sharif Government broke the deadlock and announced the NFC award. First-time the provinces right on excise duty, net hydel profit, gas development surcharge, and excise duty on crude acknowledged. Custom duty was still out of the divisible pool. There was no change in the vertical and horizontal sharing.
Surprisingly, the care-taker Government announced the 5th NFC award in 1997. Such a big decision cannot be expected from an interim Government. This time the customs duty was made part of the divisible pool. The matching grant concept was introduced for the province. However, in utter disregard of decentralization, the federal share increased from 20% to 62.5% while decreasing the provinces share from 80% to 37.5%.
General Musharaf constituted the NFC in 2000 but without a result. In 2005, again, NFC formed, and all the four Chief Ministers vested resource distribution authority to General Musharaf, who, after exercising power under Article 161(6), announced the Award in 2006. Significantly the provincial share increased from 37.5% to 45percent for the 1st financial year and decided that it would reach 50 percent with a subsequent increase of 1 percent per annum.
In December 2009 the historical, 7th NFC award was announced at Gawader with consensus. First time instead of sole criteria of the population, the three more indicators were added in the resource distribution with 82% weightage to population, poverty 10.3 %, revenue collection 5 % (2.5 % revenue generation, 2.5 % revenue collection), and 2.7 % share for the area. In the new share distribution, Punjab got 51.74%, Sindh 24.55%, KPK14.62%, and Balochistan 9.09%.
The negotiations for the 18th amendment and the 7th NFC award were going on in the same period. The insertion of Article 160 (3A) in the Constitution through the 18th amendment that provinces share cannot be reduced from the previous Award almost sealed the fate of any new agreement on NFC Award and made the NFC a ceremonial body.
This clause is rigid law, and the resource distribution can only be readjusted vertically without limit in favor of the provinces, but in fact, very small space is available with the Centre. It has further shunned any change in the horizontal distribution of resources. Now the big question is how the NFC will readjust the horizontal distribution after the approval of the 2017 census and the merger of FATA in KPK? Still there is room for further reduction in the population weightage and to increase the poverty weightage. In Australia, the per capita income is one indicator, and Center plus rich states help the poor states in the resource distribution. All this is not possible without the amendment in Article (3A).
There is already hue & cry in the Center about the insufficient resources to meet the expenditure. Prime Minister is on record that the first day of Center’s budget starts with a deficit. Now there is a feeling in the Center that the provinces have to contribute to the security expenses, subsidies, debt repayment, and calamities.
Despite all that, the transfer of WWF and 50% share from oil and gas exploration companies’ dividend is the constitutional right of the provinces. Article 172 (3) is clear about the joint ownership of federal and provincial governments in mineral oil and gas. Joint ownership is meaningless without equal sharing of income. The service charge is another area where reduction is possible from 1% to 0.5%. The Centre has to curtail the unnecessary expenditure by abolishing the devolved ministries and privatizing the loss-making state enterprises.
No doubt, the 7th NFC Award has increased the provinces fiscal space, but, on the other hand, the lack of accountability, transparency, and efficiency-related issues are serious. The situation is worse in the provinces, and no significant change is seen in the life of ordinary citizen despite thousands of billion transferred to provinces in the last 11 years. It is time to bring structural changes for monitoring and evaluation of public money transferred from the Centre. NFC amount to the provinces should be linked with the implementation of Article 140 A (1), which is about the establishment of administratively and financially powerful local governments in the provinces.
The Center and provinces are continuously ignoring Article 160(3B) by not laying the biannual reports in the parliament and provincial assemblies. When checked the record, the last report was presented by the now and then federal finance minister Dr. Abdul Hafiz Sheikh in 1911. No report from any province is available.
The Chief Minister Sindh’s opinion that he is not accountable to the Centre is unreasonable. His argument that Sindh Government has increased the revenue generation is a half-truth. Yes, sales tax on services increased many folds like other provinces due to the companies’ documentation. But the area of agriculture tax is so weak that surely he will avoid and not claim it proudly. The situation is the same in other provinces.
