Sindh rejects federal budget; fears revenue loss

KARACHI: The Sindh government has rejected some of the fiscal measures proposed in the federal budget for 2015/16, saying they are detrimental to the provincial revenue stream and also hindering its budget preparation.
Sindh Finance Minister Syed Murad Ali Shah, in a letter written to the Finance Minister Senator Ishaq Dar, expressed the provincial government’s reservations over these.
Shah said some of the Finance Bill’s 2015 measures encroached upon the constitutional domain of the provinces with regards to sales tax on services, gas development surcharge and non-imposition of excise duty on crude oil.
He added that the announced public sector development program (PSDP) allocations will cut the share of the province in the divisible pool.
Official sources attributed the delay in the preparation of the provincial budget to the 2015/16 budget.
The letter showed that Sindh received Rs287.958 billion from the federal government up to May 31, 2015 as against the revised provincial share of Rs381.383 billion.
This time around, the federal finance division fixed Rs61.499 billion in its budget as straight transfer target for Sindh, showing a decrease of Rs21.123 billion over the ongoing fiscal year.
“Such massive reductions put the Sindh government in a precarious position,” said the letter.
The provincial government further said the proposed withdrawal of sales tax on services from banking, insurance services, franchise, telecom sector, non-banking financial companies and restaurants will also suppress its revenue receipts.
“The amendment in the definition of ‘services’ in Section 2, Clause 33 (1) and (d) of the finance bill 2015 will mar our efforts in levying sales tax on services,” it added.
According to the letter, Sindh Revenue Board didn’t receive Rs1.745 billion from the Federal Board of Revenue. It urged Islamabad to transfer this amount by mid June.
The Sindh Finance Minister said under the PSDP 2014-15, Rs14.47 billion (2.7 percent of total Rs525 billion) was allocated for the projects in Sindh.
A block allocation of Rs8 billion was also kept to beef up the existing allocations.
The size of next year PSDP was raised to Rs700 billion (including Rs100 billion for internally displaced persons).
However, only Rs6.7 billion has been allocated for the schemes being executed by the Sindh government in PSDP 2015-16. It is 0.97 percent of the PSDP.
The provincial government requested the federal government to allocate funds at least to the level of the last year’s allocation of Rs14.47 billion.
Minister Shah said the federal government provided only Rs829 million under the agreed joint plan for the greater Karachi Sewerage Plan (S3), while the provincial government released and proposed an allocation of Rs2.970 billion for the next year.
He requested the federal government to allocate Rs2.141 billion in the PSDP 2015/16 to match the funds.
The minister said K-4 is strategically important project for Karachi and the total estimated cost of the project is Rs25.55 billion. The federal government has agreed to finance 50 percent of the total cost.
However, the new federal budget indicated that the federal government will contribute Rs2 billion for this project – the amount was not credited to Sindh. This should be transferred with the next bi-monthly federal transfers in mid-June.