The distribution of revenues between the federal and provincial governments has always been a major bone of contention and sensitive issue.
The distribution of revenues between the federal and provincial governments has always been a major bone of contention and sensitive issue. The 7th NFC award unanimous decided by all political parties in 2009, taken as a big success to check financial imbalances which however is still the major syndrome impacting 188 million nation.
But the state elite confer the political powers and exploited huge funds in recent past that has changed the economic dynamics of the country.
The NFC Award 2009 made applicable with effect from fiscal year 2010-11 through "Distribution of Revenues and Grants-in-Aid Order 2010”
NFC constituted under the Article 160 of the constitution and the economic program designed for the growth .The objective of the program to take control of financial imbalances and managed the financial resources of four provinces equally as per the formula successfully agreed in the seventh NFC award in 2010
The entire exercise of NFC linked with the "devolution and decentralization" still a distant dream as successive political governments failed to hold polls for local government in Punjab,KPK and Sindh. Balochistan is the only province that successfully holds LG polls.
Had the local governments in placed under the article 140-A of the constitution (post agreement of NFC award) the socio-economic dynamics could have been different today. Poor governance by the federal and provincial governments has made the lives tougher for commoners.
After five years fiscal decentralization, which is an essential part of the democratization process, was not implemented in the country courtesy to ruling elite. As a result common man is facing up to 14 hours of load-shedding in urban and 18-20 hours in rural areas but the same elitist class exempted even though they can afford to keep generators.
More than 60 percent of Pakistan’s population earns just $2 or Rs 200/ day, lives below poverty line. The battle of haves and haves not has further widened.
On the other hand, no incremental capacity was added to improve the public service delivery in the four provinces despite of the fact that billions of funds were transferred from federal divisible pool.
As per official documents of Finance Ministry, Punjab emerged as the major beneficiary among all provinces and exploited more than Rs3.0 trillions since the promulgation of the seventh NFC. Sindh received Rs 1.75 trillion from the federal divisible pool. The provincial government of KPK realized Rs1.1 trillion from the successive federal government while Balochistan grabbed Rs.615 billion to date.
As per the understanding in 7th NFC award, federal and provincial governments had to address the loopholes in their tax collection systems to reduce leakages and simultaneously increase their tax to GDP to 15 percent by the terminal year i.e. 2014-15. Agriculture and real estate sectors should be brought under tax net and necessary administrative and legislative steps to be taken accordingly. But since neither the loopholes in tax system screwed nor the tax to GDP enhanced to 15 percent infact it remained at 10 percent.
An absence of NFC monitoring committee or independent body was exploited by successive government to play around. Perhaps the most important issues like education, health, sanitation and water, economic development and tax put on the back burner. Commonmen are paying huge cost of incompetence and poor governance.
The kind of disparities and societal and fractured division unfortunately we have been facing are worsening the situation rapidly that had to be responded well by a cohesive and integrated strategy backed by political parties, civil society and religious forces but is not the case in reality.
Instead of socio-economic massive reforms and well designed governance related plan the leaders tried to follow whatever they wanted to protect their vested interests and put entire nation on stake.
The first step should be to implement Provincial Finance Commission (PFC) which is the real ingredient of local government system - backbone of the democratic system.
Respective provincial government must distribute funds to the districts and then to union council with the same NFC formula. But unfortunately neither the political Governments implemented article 140-A to form local governments as per constitution nor the funds transferred from provincial capitals to districts and union council. As a result the service delivery of the system has paralyzed and impacted badly on the day to day affairs of common man. Political parties implemented article 160 to get funds from NFC, but they ignored article 140-A as same funds need to distribute to public.
The formula of 8th NFC Award should be different to the 7th NFC considering the economic capacity constriants, poor collection in taxes and rapid growth of the population.
The 7th NFC award formula given 82 percent weightage to population, poverty 10.3 percent, revenue 5 percent (2.5 percent revenue generation, 2.5 percent Revenue collection) and area 2.7 percent share.
Radical reforms by federal and provincial governments with the integrated strategy to move forward will be essential, considering the low taxation and rapid population growth in the country.
The agreed formula of NFC needs to be changed in such a way that push tax revenue growth and control the fast growing population simultaneously.
According to Economic Survey 2013-14, Pakistan is the 6th most populous country in the world with projected population of 188 million and the growth rate in Pakistan 1.95 percent, which is higher than average growth rate of South Asian countries.
A growth of 3.6 million population every year has become the biggest threat to the system in the absence of institutionalized and structured economic system. As a result we need to reduce the population weightage in the NFC formula for effective population management. To put scenario in perspective, the weightage of population should be reduced by at least 10 percent.
The share of revenue in NFC is also very low and to be revised by the same percentage of 10 percent in the basket in order to balance the equation. It will be a good omen to encourage provinces to increase the tax revenue and document the system gradually.
Even One percent of the net proceeds of divisible pool taxes shall be assigned to all the respective provinces to further incentivize for more tax collection as decision taken previously for war on terror to support the KPK government.
At this stage, Pakistan needs aggressive structural reforms in energy, taxation and social sector to document the economy which is the only way to improve governance in the country. Change in NFC formula will impact positively for fiscal discipline and managing financial resources effectively.
The writer is a broadcast journalist
