IN a sensitive but welcome move, President Asif Ali Zardari on Friday constituted the 11th National Finance Commission (NFC) award for distribution of net proceeds of taxes between the federation and the provinces.
Federal Minister for Finance and Revenue Muhammad Aurangzeb will be the Chairman of the 9-member forum, while the finance ministers of provinces and one representative from each province will be the members. Its Terms of Reference (TORs) also include making recommendations for grants-in-aid by the federal government to provinces; exercise of the borrowing powers by them; issues relating to the sharing of financial expense in respect of subjects and matters falling within the domain of the provinces; sharing of financial expense incurred or to be incurred by the federation or the provinces or both in respect of trans-provincial matters and issues related to financial expense for national projects to be shared by the federation and the provinces.
The issue of a fresh NFC award has always been considered sensitive because of the never-ending debate on what factors should form the basis for the distribution of taxes from the federal divisible pool. Apart from divergence of views between the federation and the provinces on the subject, there are also differences among the provinces themselves about what should constitute formula for the purpose. This time round, announcement of a fresh consensus award assumes challenging dimensions as the centre believes the existing formula is at the heart of its financial woes and rising debt burden, emphasizing the need for downward revision of the provincial share of taxes from the divisible pool. As per 7th NFC Award, the share of the provinces was increased by 10% to 57.5% and the actual ratio goes up to 62% after incorporation of subventions and grants on a per annum basis. There is, of course, need for a strong federation as has been highlighted by the recent conflict with India, which posed serious threats to the security of the country, necessitating more resource allocations for defence. However, the Centre has to blame itself as successive governments failed to transfer subjects that should have gone to the provinces under the 18th Constitutional Amendment, which could have reduced overall expenditure of the Federal Government. An exercise for the right-sizing of the Government is underway and this should be done as has also been repeatedly proposed by the PPP leader Bilawal Bhutto Zardari. Similarly, the Centre is excessively increasing allocations for programmes like the Benazir Income Support Programme (BISP) the real beneficiaries of which are the provinces. There is logic in proposals that the cost of such schemes and other mega development projects in a particular province should be shared by the Federation and the provinces on a realistic basis. This seems to be an acceptable proposition as against the demand on provinces to agree on a reduced share from the divisible pool as under the Constitution the share of any province in the new award cannot be less than what it was already getting under the award in-vogue. There are also demands to bring down the population weightage in the resource distribution formula and such demands are apparently aimed at harming interests of Punjab, which is the most populous province. The writers of a working paper on the NFC have reportedly suggested cutting the population’s weightage down by at least 10% in the next two NFC awards; slash its share by another 15% in the subsequent two awards to ultimately reduce its weightage to 50% from 82%. As population factor is the main reason to make all population censuses controversial, Planning Minister Prof. Ahsan Iqbal has proposed freezing the population at 241.5 million for the purpose of the distribution of resources. There are, of course, serious challenges but hopefully consensus will finally emerge provided all stakeholders demonstrate the spirit of mutual accommodation.
