WEB DESK: Punjab Finance Minister Dr Aisha Ghous Pasha, subsequent to a meeting in Lahore to resolve all pending issues that were cited as reasons for the delay in the National Finance Commission (NFC) award, contended during a press briefing that “a request has been made to the federal government to call the 9th NFC award meeting without any delay as the working groups of the provinces have completed the task assigned to them.” The deadline given by the provinces is December this year.
The task assigned to the working groups represented by all the provinces was to reach a consensus on all outstanding issues, including extremely serious matters relating to double taxation in which the main sufferers are not only the service providers but also their customers/clients because sales tax is passed-on to the end consumers.
Be that as it may, while the input-output tax adjustment between the federal government and the provinces was an example of double taxation, yet that has been resolved through a judicial order. However, Punjab and Khyber Pakhtunkhwa’s (KPK’s) sales tax on services law also constitutes double taxation as it allows their revenue authorities to not only collect sales tax on services that are generated within the province but, disturbingly, also on services generated by another province but acquired by those within the province.
One would hope that the consensus referred to by Dr Aisha Ghous Pasha includes successfully dealing with this issue which is impacting negatively on the people of this country.
Dr Aisha Ghous Pasha added that a census prior to discussions on the 9th NFC award would have been ideal but added “we cannot delay the NFC award due to delay in population census as the award itself is an important thing and a lifeline for provinces.”
The last five-year NFC award was finalised in 2010 and was extended by the Federal Finance Minister Ishaq Dar last year on the plea that the census could not be held due to the inability of the armed forces to extend the necessary security to the census officials due to its engagement in the Operation Zarb-e-Azb. However, two observations in this context are necessary: (i) the results of a census would determine the allocations between provinces from the federal divisible pool and not between the provinces and the federal government; and (ii) it suited the federal government to delay the census and more importantly from its perspective the NFC award as Dar has repeatedly expressed concerns over the Centre’s shrinking share in the divisible pool. Given the constitutional Article 160 (3A) that “the share of the provinces, in each award of NFC shall not be less than the share given to the provinces in the previous award” its share is expected to further reduce in the next NFC award.
The likely demands of the provinces for the 9th NFC award can be gleaned from a presentation made by Dr Aisha Ghous Pasha in her capacity as Director Institute of Public Policy in which she made four observations. First, she cited the IMF staff report under the then ongoing 2008 Stand-By Arrangement which cited the following as a prior action that the authorities ‘impose a balanced budget requirement on provinces and agree with the provinces to save additional revenues generated by the programme’.
Secondly, she noted the full transfer of expenditure responsibilities to provincial governments under the 18th Constitutional Amendment – devolution which was supported by all but required time for implementation as it entailed capacity-building by the provinces.
Third, she cited the enhanced efforts of the provinces to generate revenue and compared it with the federal government’s efforts post-2010 NFC award. For the years 2010-11, 2011-12 and 2012-13 she cited the following growth figures for the federal government notably 43.9 percent, 8.9 percent, and 21.9 percent. Comparable growth rates for provincial receipts were 3.4 percent, 22.2 percent and 43.2 percent or a steady rise.
And finally, she concluded that the 7th NFC award “ushered in a sense of autonomy in the federating units and is therefore a landmark achievement of a democratically-elected government. It constitutes a golden opportunity to improve the level of social development in the country. However, it requires both levels of government to responsibly respond to the new dispensation. Some trends have to be strengthened (like provincial fiscal effort) and some changed (like federal fiscal effort).
The way forward is in deepening the process of decentralisation.” We at Business Recorder could not have put it better. There is an urgent need for the government to begin the process of strengthening provincial government efforts and at the same time strengthen its own tax structure to ensure a heavy reliance on direct taxes or taxes on income instead of increasing reliance on imposing withholding taxes on services/consumer items in the sales tax mode.
Source: Business Recorder