The 7th prize, in 2010, attempted to rectify the anomalies by increasing the overall allocation to the provinces to 57.5% and reducing the weight of the population to 82%. Photo: file
ISLAMABAD:
Sindh Chief Minister Syed Murad Ali Shah has raised concerns over the inclusion of three of the seven terms of reference of the National Finance Commission (NFC), a move that could make it difficult for the Center to transfer the majority of its expenditure to the federating units.
Official documents show that during the first meeting of the NFC, the CM declared that the inclusion of these three terms of reference in the NFC notification was unconstitutional.
These terms relate to the transfer of expenditures from the Higher Education Commission (HEC), the Benazir Income Support Program (BISP) and provincial projects that are part of the federal Public Sector Development Program (PSDP), as well as any expenditure on national projects such as mega dams.
However, in response to Sindh’s objections, Finance Secretary Imdad Ullah Bosal returned the ball to Sindh’s court by stating that it was President Asif Ali Zardari, who co-chairs the PPP, the ruling party in Sindh, who had the final authority to determine which topics could be included in the NFC.
Syed Murad Ali Shah is a member of the NFC in his capacity as Finance Minister of Sindh.
“The Sindh Chief Minister observed that agenda items (d), (e) and (f) do not fall within the constitutional limits,” the documents said.
Term (d) concerns questions concerning the sharing of financial expenses incurred or to be incurred by the federation with regard to subjects and matters falling within the domain of the provinces.
The term (e) deals with issues relating to the sharing of financial expenditures incurred or to be incurred by the federation, the provinces, or both, with respect to trans-provincial matters.
Term (f) concerns issues related to the financial expenditure of national projects to be shared between the federation and the provinces.
Sources said that in one of the follow-up meetings convened at the technical level, Punjab suggested that the NFC subgroup should cover only terms related to tax expenditure incurred by the federation in the provinces.
The sources added that in response to Sindh’s objections, the Federal Finance Secretary said that the terms of reference had been approved by the President and there was no restriction on the President regarding the inclusion or exclusion of certain items.
The federal government believed that these expenditures were indirectly part of Article 160 of the Constitution, which deals with the NFC.
The federal government has said that borrowing is also part of Section 160, which essentially means that such spending falls under the jurisdiction of the NFC.
However, due to Sindh’s objections, the federal government also sought the opinion of Attorney General of Pakistan Mansoor Awan, who came out in favor of the Centre.
He further explained that Article 160(2) is not limited to revenue matters; rather, it also encompasses borrowing powers, and borrowing is intrinsically linked to spending considerations.
The federal government complains that it cannot run the country with only 42.5% of the revenue in its hands after transferring 57.5% of the divisible pool to the provinces.
However, despite limited resources, the federal government continued to spend in areas of a provincial nature for reasons of political expediency.
Contrary to the NFC’s de jure 57.6% share, prominent tax expert Dr Hafiz Pasha said earlier this month that provinces actually received only 46% of total federal revenues in the last fiscal year after adjusting for the impact of undistributed oil tax and cash surpluses.
Sources said the Sindh CM was of the view that provincial expenditure should be handled by the respective provincial assemblies and the National Economic Council.
However, sources added that despite the Sindh CM’s serious reservations, there is still a possibility of provinces taking responsibility for higher education.
They are, however, reluctant to take responsibility for the BISP.
BISP spending is budgeted at Rs716 billion for the current fiscal year and is largely directed by the International Monetary Fund to be presented as a substitute for its harsh fiscal measures.
The Sindh CM also emphasized that consensus could only be developed through deliberations in the NFC forum and the Commission should strictly adhere to its constitutional mandate moving forward.
Khyber-Pakhtunkhwa (KP) Chief Minister Sohail Afridi urged the five stakeholders to put aside political differences and work in unity, in a statement reflecting the province’s positive approach towards issues of national importance.
Finance Minister Muhammad Aurangzeb also acknowledged the role of the four provinces in signing the National Fiscal Compact and their efforts to achieve budget surpluses to support Pakistan’s compliance with IMF requirements.
Afridi stressed the need to put aside political differences, maintain mutual respect and fulfill the constitutional responsibilities of the NFC.
The KP Chief Minister observed that the people of his province had made great sacrifices for Pakistan, which had not been duly recognized.
However, Afridi, who is also the provincial finance minister, termed the 7th NFC award since 2018 as unconstitutional, arguing that it does not meet the needs of the over five million residents of the merged districts of KP.
KP hopes its provincial share in total revenue will increase to nearly 19% after incorporating the impact of the new merged population.
The NFC has also constituted a task force to address KP’s concerns regarding the merged districts. Its first meeting is expected to take place today (Tuesday).
Sources said that in the first meeting, Punjab had stressed the need for equitable distribution of resources and policy coherence between the federal and provincial governments.
Punjab has also linked future resource distribution to improvement in the Human Development Index (HDI) and other key economic indicators.
