NFC - Discussion on Pakistan revenue spending PDF

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Discussion on Pakistan revenue spending...

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Introduction.

NFC – National Finance Commission is a constitutional body set up for the distribution of financial resources among the provinces by federal government on annual basis, called National Finance Commission Award. Certain types of taxes collected in each province are pooled, and then redistributed according to the NFC formula.

Constitutional Provision of NFC. NFC is constituted under Article 160(1) of the 1973 constitution (Annex I) and proposed to be held at the intervals of five years.

Composition of NFC. Federal Finance Minister – Chairman Provincial Finance Ministers and other concerning experts which the President may appoint after consultation with provincial Governors [Constitution of Pakistan (1973)].

Main Charter of NFC. (1) The distribution of specified taxes, duties between federation and provinces. (2) The disbursement of grants to provincial governments. (3) The borrowing powers exercised by federal and provincial governments. (4) Any other financial matter referred to commission.

Previously Approved NFC Awards.

1974 - First NFC Award given by the elected government of late Z.A.Bhutto

1991 – Second NFC Award given by PML government, Nawaz Sharif as PM

1997 – Third NFC Award was announced by a caretaker government of Farooq Ahmed Leghari and Prime Minister Malik Meraj Khalid

NFC Award - 2009 A very important and welcome development was the approval of 7th National Finance Commission (NFC) Award 2009 by all four provincial and the federal governments, reflecting political will to resolve key issues.

Link: http://www.cssforum.com.pk/css-compulsory-subjects/current-affairs/current-affairs-notes/23095national-finance-commission-nfc-award.html

HOW IT IS DISTRIBUTED:Article: 160 National Finance Commission 160. National Finance Commission.—(1) Within six months of the commencing day and thereafter at intervals not exceeding five years, the President shall constitute a National Finance Commission consisting of the Minister of Finance of the Federal Government, the Ministers of Finance of the Provincial Governments, and such other persons as may be appointed by the President after consultation with the Governors of the Provinces. (2) It shall be the duty of the National Finance Commission to make recommendations to the President as to– (a) the distribution between the Federation and the Provinces of the net proceeds of the taxes mentioned in clause (3); (b) the making of grants-in-aid by the Federal Government to the Provincial Governments; (c) the exercise by the Federal Government and the Provincial Governments of the borrowing powers conferred by the Constitution; and (d) any other matter relating to finance referred to the Commission by the President. (3) The taxes referred to in paragraph (a) of clause (2) are the following taxes raised under the authority of 1 [Majlis-e-Shoora (Parliament)], namely:–

(i) taxes on income, including corporation tax, but not including taxes on income consisting of remuneration paid out of the Federal Consolidated Fund; 2 [(ii) taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed;]

(iii) export duties on cotton, and such other export duties as may be specified by the President; (iv) such duties of excise as may be specified by the President; and (v) such other taxes as may be specified by the President. 3

[(3A) The share of the Provinces in each Award of National Finance Commission shall not be less than the share given to the Provinces in the previous Award. (3B) The Federal Finance Minister and Provincial Finance Ministers shall monitor the implementation of the Award biannually and lay their reports before both Houses of Majlis-eShoora (Parliament) and the Provincial Assemblies.] (4) As soon as may be after receiving the recommendations of the National Finance Commission, the president shall, by Order, specify, in accordance with the recommendations of the Commission under paragraph (a) of clause (2), the share of the net proceeds of the taxes mentioned in clause (3) which is to be allocated to each Province, and that share shall be paid to the Government of the Province concerned, and, notwithstanding the provision of Article 78 shall not form part of the Federal Consolidated Fund. (5) The recommendations of the National Finance Commission, together with an explanatory memorandum as to the action taken thereon, shall be laid before both Houses and the Provincial Assemblies. (6) At any time before an Order under clause (4) is made, the President may, by Order, make such amendments or modifications in the law relating to the distribution of revenues between the Federal Government and the Provincial Governments as he may deem necessary or expedient. (7) The President may, by Order, make grants-in-aid of the revenues of the Provinces in need of assistance and such grants shall be charged upon the Federal Consolidated Fund

Link: https://pakistanconstitutionlaw.com/article-160-national-finance-commission/

Articles:QUETTA, March 30: Balochistan will get maximum benefit in the next National Finance Commission award, says Federal Finance Minister Shaukat Aziz. He was speaking to leaders of the business

community, bankers and members of the Balochistan Chambers of Commerce and Industry here on Tuesday. Mr Aziz said that President Musharraf and Prime Minister Jamali had called for accommodating maximum demands of the provinces in the next NFC award, making it more acceptable and realistic, adding that they had also called for improving their resource situation. Highlighting Balochistan's potential in various sectors, including agriculture, oil, gas, mining, fisheries and tourism, the federal finance minister said the government was making efforts for attracting foreign investment in Balochistan. Focussing on providing better facilities at the Gwadar port, Shaukat Aziz said that transit shipment facility would be provided, enabling businessmen to keep their cargo there for onward shipment to the Gulf states. The government, he said, was planning to spur tourism in Gwadar, attracting foreign tourists by providing maximum recreational facilities, adding that the Oman government would extend financial assistance in this regard. He reminded that the Chinese government is already helping Pakistan in developing the port. He said that the development of tourism would translate into provision of jobs to the local people. Shaukat Aziz said that bilateral trade between Pakistan and Afghanistan had increased by comparison with its trade with Iran, adding one could now spot Pakistani products in Kabul's markets. He said that in the future, the country's trade with Afghanistan would further improve. The government, he said, was trying to discourage smuggling

through transit trade with Afghanistan, adding that X-ray scanning machines would be installed in Peshawar, Torkham, Chaman, Quetta and Karachi to check transit goods. He said that Pakistan would establish a link with Afghanistan and Central Asian states via Chaman, adding that work would soon start to lay a railway line between Chaman and Kandahar. Two surveys had been carried out in this connection, the federal finance minister said. Referring to the country's economic recovery, Shaukat Aziz said that Pakistan's economic position was more stable now than in the past, adding that soon the country would free itself from the clutches of the international monetary institutions. Highlighting economic reforms undertaken by the government, Mr Aziz said job opportunities were being created with an improvement in the country's economic conditions, adding it would help in eradicating poverty and underdevelopment in provinces besides boosting trade and industrial activities. Agricultural production, he said, was increasing, adding Pakistan produced a record sugarcane crop while registering a nine per cent increase in its rice production. Pakistan's industrial output, he said, had increased by 15 per cent while people were investing in textile, engineering, automobile and cement industries. Shaukat Aziz said Saindak copper project had been revived with China's help, adding the project would help Balochistan improve its economic conditions. Earlier, president of the Balochistan Chamber of Commerce and Industry Haji Ghulam Sarwar, vice-president of the Federation of Pakistan Chambers of

Commerce and Industry Sardar Mohammad Ali Jogezai and other business leaders also spoke on the occasion. Federal Minister for Finance Shaukat Aziz and Balochistan Chief Minister Jam Mohammed Yousuf held a meeting here on Tuesday, APP adds. Ways and means to promote tourism on Balochistan coast was discussed, the news agency said. It was agreed that financial institutions would be approached for extending financing support to investors in Gwadar. Link: https://www.dawn.com/news/355228

AFTER a gap of many years, discussions on the next National Finance Commission award are finally moving forward again, and the finance minister’s announcement that the aim is to have a new award by December is an indication of serious intent. The timeline is realistic and the talks have acquired structure and momentum since they restarted in February, while the second meeting concluded yesterday. The most important thing to keep in mind for the federal government, the curator of the entire process, is that the NFC operates on the principle of consensus. Nothing should be done to undermine the spirit of consensus in pushing towards a final outcome. This award is being negotiated exactly 10 years after the last consensus-based NFC award was announced, and success on this front will be an important and lasting part of the PTI’s legacy. But should the federal government depart from the principle of consensus in pushing for its demands, it is likely to lead to the

breakdown of talks, which would only cement the growing perception of the PTI as a party that is unable to carry the others along. More than any other forum, this is the place where the finance minister and his team need to demonstrate a delicate touch and their prowess in the subtle of art of negotiation. The provinces are entitled to press for their demand to continue the process of devolution further in the face of the federation’s desire to reclaim fiscal space at the expense of the provinces. Whether or not they choose to press ahead, this entitlement is a political choice each provincial government will make, nothing more. The sharp erosion of fiscal space at the centre has been under discussion during these talks, and indications suggest that Sindh alone, being the only province ruled by a party from the opposition, is putting up a spirited fight against the strong appeals coming from the centre to arrest and reverse the growing transfer of resources to the provinces. The federal authorities at the table must realise that those responsibilities that belong to them, whether funds for Fata, Azad Kashmir and Gilgit Baltistan or for bodies like the Higher Education Commission, are squarely theirs to discharge. They can request the provinces to share the burden of the expenses associated with these. They can press their case with data, with appeals to patriotic duty, perhaps even invoke moral obligation. But they cannot demand these resources as a right or something they are entitled to, nor can they seek to take them from the provinces in a non-consensual manner. Rather than using the NFC as a forum to only seek a new formula for how the resources of the state will be distributed among the federating units, the government should steer the talks towards how the revenue and the governance responsibilities of the state will be shared. Link: https://www.dawn.com/news/1472784

CRITICISMS/SHORTCOMINGS:National Finance Commission Award And Fiscal Deficit: HumSub.TV National Finance Commission Award And Fiscal Deficit: All economic ills in Pakistan are shaped by fiscal deficit as it has widened the gap between income and expenditure which has almost gone upto Rs 2trillion. Pakistani government is planning to fix a target for its revenue collections upto Rs 4.5 trillion for the year 2018-2019. The government has been claiming 5.8pc deficit for 2016-17 against the 3.8pc budgeted target. Fiscal deficit in the first quarter of 2017-18 has already crossed 1.2% of GDP compared to 1.3% of GDP in the same period last year stated by the IMF report. Main Reasons of Fiscal Deficit



7 National Finance Commission (NFC) award gave 57.5% share to th

provinces the root cause of the fiscal problem. 

Due to the 18 Constitution Amendment which empowered provinces, th

financial resources were spend with any direction and learning Due to the above reasons Ministry of Finance has claimed that the federal treasury got deflated. For the current fiscal year, the federal government under the National Finance Commission (NFC) Award is extending Rs2.4 trillion to the provinces and retaining just Rs1.6 trillion to manage other responsibilities. Without addressing the NFC issue, fiscal problems will continue to surge and in the absence of a certain strategy, the current account deficit cannot be reduced which is widening due to unequal imports and declining exports. The interim government and the new elected government will have a huge task to address the issue of double deficits. The manipulated figures would not do the help in tackling serious economic challenges.

Major economic indicators including imports and exports, fiscal and external deficits, revenues and FDI are deteriorating; the government is showing 14% industrial growth. But the origin of this growth has not been shown in statistical details. In order to deal with the fiscal deficit issue political resolve with structural reforms might prove helpful. Experts also suggests that through better governance, simplifying the taxation system and introducing a value-added tax the government can attract more investment which might pave a way to take the country out of economic instability. Link: https://humsub.tv/national-finance-commission-award-fiscal-deficit/

Pakistan's National Finance Commission (NFC) Awards - A tool to exploit Sindh By Naseer Memon (English Translation by: Khalid Hashmani) About Author: Mr. Naseer Memon is a development professional and a writer on environmental and development issues. He has been associated with Non-Governmental sector since last 16 years including UNICEF, UNDP, WWF Pakistan and LEAD Pakistan. He is a regular contributor to major Pakistani newspapers such as Daily Dawn and Daily Kawish. He has authored several books on the economy and poverty issues of Sindh. He is also Vice Chairperson of the Board of Director of leading civil society organization “Strengthening Participatory Organization (SPO) and the Member Board of Directors of Indus Resource Center. About Translating Author: Mr. Khalid Hashmani is a Washington DC-based veteran human rights activist. He is the founding President of Sindhi Association of North America (SANA) and Chief coordinator of Sindhi Excellence Team (SET) that participates in advocacy activities on behalf of rural Sindhi. [Backdrop: As the Pakistani establishment including their new political party partners mull over the upcoming NFC award, the people of Sindh have dug their heals and want that the awards be fair and follow the best practices of other similar countries such as India. The grass-root political workers from all political parties in Sindh who have long criticized the inequalities of NFC award are joining hands to bring an end to the exploiting aspects of the award. In this backdrop, SaeeN Naseer Memon has once again written a timely and detailed analysis of the exploiting nature of current NFC awards. He urges the ruling party that as the inequities in the form of NFC started after 1973 constitution when PPP was in power; the

time has come for PPP to play its role in correcting this historic form of exploitation and restore fairness to all provinces. It is hoped that the information in this article would enable those who are engaged in lobbying and advocacy activities on behalf of Sindh to get it in front of decision makers and influencers. ] Basic inequities of Current NFC Awards The critical inequities of the NFC award lie in three areas – first it is distributed solely on the basis of population, second it covers almost all of the revenue generation in Pakistan, and third it enables the federal government to keep a lion’s share for itself. How Pakistan and other countries collect and distribute revenues to Provinces? In 1974, 1979, and 1990 NFC awards, provinces received 80% of total revenue collected and 20% was kept by the federal government. However, starting 1996 during the rule of an interim government headed by PPP’s Miraj Malik and when the Chief Minister was Mumtaz Bhutto, the federal share was drastically increased to 62.5% leaving only 37.5% for the provinces. At the present time the Federal government collects 91% of taxes levied in the country and the provincial governments collect between 6 to 7%. In comparison, provinces in Malaysia, Nigeria, Mexico, and Columbia collect about 10%, 10%, 12%, and 15% of revenues respectively. Thus, unlike other countries, the provinces in Pakistan made depended on the federal government on NFC handouts from the federal government Regardless of how much revenues they generate or how rich they are, the only major source of revenue for Pakistani provinces are the NFC awards to pay for health, education, social services and other needs. On the expense side, federal government pays for 71% of the provincial expenditures and remaining 29% must be borne by the provincial governments. However, some provinces can only afford to pay 16% of their expenditures compared to India. In India, collection of revenues is not monopolized by their federal government, and Indian provinces are capable of paying about 35% of their expenses. In fiscal year 2009-10, the total revenues to be collected by Pakistan government are estimated at 1,352 billion rupees. However, 52% of this revenue will be kept by the federal government and only 48% (569 billion rupees will be allocated to the provincial divisible pool . From this divisible pool, 326 billion rupees are allocated to Punjab and Sindh would receive 135 billion rupees. Pakistan is the only country in the world where the distribution of income/resources to provinces is done only on the basis of population. Other countries not only take population into account but also consider other criteria such as poverty, natural resources, revenue generating capability, and extent of development requirements to ensure an equitable and fair distribution. For example, in the neighboring India, the only 22.5% of distribution of income tax collected by the federal government is done population basis. Similarly, only 25% of Excise duties collected by the federal government are done on the basis of population. These shares have been adjusted during various times depending upon the changing conditions. Among other countries, Argentina, Nepal, Mexico distribute only 65%, 20%, and 50% respectively.

Why Pakistan uses only population as a basis for distributing revenues? There is no justification to use the population as the sole criteria for distributing revenues to provinces in Pakistan. One apparent reason that all three small provinces vigorously talk about is that this criteria enables Punjab to get the maximum share of country’s resources. Using this criteria Punjab secures 56%, Sindh gets 23%, North-West Frontier Province (NWFP) gets 13.5%, and Balochistan receives about 5%. Why there is resistance to implement recommendations to remove inequities in NFC awards? A working group formed by the 6th Finance Award recommended in August 2002 to include tax recovery and generation, area, and economic conditions of provinces in addition to population for NFC awards. Sindh and Balochistan supported these changes but Punjab and NWFP rejected these recommendations. When in oppositio...