Encouraging signs on NFC from provinces

[LahoreEstate]

The federal finance minister’s optimism on the progress of the National Finance Commission in devising a new award on the distribution of resources is welcome. But one hopes that Mr Shaukat Tarin has not been too hasty in assuming that a consensus has been reached.



Admittedly, the issues of gas development surcharge, royalties and wellhead prices as well as general sales tax on services have been contentious ones. Balochistan was the worst sufferer in the case of the first as its rates were lower than that of the other provinces. Sindh, the major collector of sales tax on services, was the loser when this tax was taken away from the province by Islamabad. By agreeing to equalise gas charges and royalties and returning the GST on services to the provinces, the NFC has sent an encouraging message by creating an air of confidence. But there are so many other bridges to cross that we should not jump to conclusions until more progress is made.



The fact is that no agreement has so far been announced on a number of issues that have presumably been taken up by the two subcommittees announced at the start. They promise to be highly controversial. There are two key aspects to be considered in the division of resources. One is the vertical dimension that calls for agreement on the ratio in which the centre as the major collector of taxes will share these resources with the provinces. At present it keeps for its own expenses 55 per cent of the taxes it collects plus five per cent as collection charges. How much of this share is Islamabad willing to relinquish? The second aspect is the horizontal division of resources among the provinces. Anyone who believes that agreement on this will be smooth-sailing needs to look at the issues more closely.



It was no problem getting all the parties on board on the principle of expanding the criteria on the basis of which the resources would be distributed among the federating units. Previously there was a single yardstick — population. Now poverty, under-development, size and revenue-generation will also be considered when fixing the ratio. But how will these be weighted? Each province attaches most importance to the factor that works to its advantage. In the case of Sindh it is resource-generation while Balochistan and the NWFP argue for backwardness and poverty as the major determinants as these would enhance their share in the federal divisible pool. What is clear is that the success of the NFC award is closely linked to provincial autonomy and restructuring of the federal government.

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