By Staff Reporter
ISLAMABAD: After months of postponements that have underscored the political and fiscal strains gripping the country, the government has called the first meeting of the 11th National Finance Commission for Dec. 4, setting the stage for what could be contentious negotiations over how to divide the nation’s tax revenues between the center and its four provinces.
The session, to be chaired by Finance Minister Muhammad Aurangzeb in the capital, marks the formal start of talks on a new resource-sharing formula to replace the 7th NFC Award, which has governed federal-provincial finances for 15 years, far beyond its intended five-year term.
Officials described the gathering as a critical step toward rebalancing a system that many in Islamabad now regard as unsustainable. Notices sent to the provinces this week outlined a concise but symbolically weighty agenda. The meeting will open with a general discussion on the “strategy for deliberations on the 11th NFC award, including proposed formation of sub-groups for deliberations on thematic areas.”
Each of the four provincial governments and the federal Finance Ministry will then deliver 10-minute presentations on their fiscal positions. The commission will close by fixing dates and venues for subsequent sessions, which are expected to rotate among federal and provincial capitals until an agreement is reached.
The Dec. 4 date is the sixth attempt to convene the body since it was constituted on Aug. 22. Earlier sittings planned for Aug. 27, Aug. 29, Nov. 17, Nov. 18 and a further session in November were all deferred, first for unspecified reasons, then at Sindh’s request because of devastating floods, and finally at the wish of the Prime Minister’s Office.
The commission, required by Article 160 of the Constitution, must recommend how the net proceeds of major federal taxes, income taxes, sales taxes, export duties on cotton, excise duties and others specified others, are split between the center and the provinces. It is also tasked with proposing grants-in-aid, setting borrowing rules, and allocating resources for Azad Jammu and Kashmir, Gilgit-Baltistan, and the formerly federally administered tribal areas now merged with Khyber Pakhtunkhwa.
Beyond the traditional vertical split, the 11th NFC carries an unusually heavy additional mandate. It must examine provincial contributions to nationally significant expenditures, including natural disasters, horizontal health programs, major dams, highways and motorways, as well as transnational projects and national initiatives requiring joint funding.
In line with repeated International Monetary Fund recommendations, the government is pushing for provinces to shoulder part of the rising costs of climate-related calamities and to shift the horizontal distribution formula away from its heavy reliance on population toward indicators tied to poverty, revenue generation, inverse population density and, potentially, social-sector performance and local-government functionality.
Under the 7th Award, announced in 2009, provinces’ share of the divisible pool was raised to 57.5 percent from roughly 47 percent, with Punjab receiving 51.74 percent of the provincial slice, Sindh 24.55 percent, Khyber Pakhtunkhwa 14.62 percent and Balochistan 9.09 percent. Special allocations later pushed the overall provincial share closer to 59 percent. Yet the center government has since clawed back ground through a petroleum levy that now generates about 1.5 trillion rupees annually and by retaining provincial cash surpluses of similar magnitude.
Neither side has met the revenue-mobilisation promises made in 2009: provinces pledged to raise their own-tax-to-GDP ratio by 0.5 percentage points each year; the center committed to a 1 percentage point annual increase. Both targets remain unfulfilled.
The coming negotiations are taking place as the country faces acute fiscal stress. Debt servicing, defence needs and flood recovery and IMF-mandated consolidation have left the federal government arguing that it can no longer afford the current transfer levels. The Constitution, however, explicitly prohibits any reduction in provinces’ share from one award to the next, and every NFC award requires consensus among the five voting members, the federal finance minister and his four provincial counterparts.
Prime Minister Shehbaz Sharif, though not a formal member of the commission, is expected to hold consultations with key coalition partners, particularly the Pakistan Peoples Party, which governs Sindh and has historically defended provincial autonomy. An earlier federal attempt to curtail provincial shares and reclaim devolved subjects through the proposed 27th Constitutional Amendment was shelved as part of a political deal with the PPP to prioritise judicial and military-related reforms.
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