Govt sleeps through deadline for 8th NFC Award

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8th NFC Award not likely to be implemented before Fiscal Year 2016-2017 as federal govt, provinces have failed to initiate meetings; consultations likely to take more than a year

Failure to timely constitute award may jeopardise loan agreement with IMF

The federal government has missed the deadline for constituting the 8th National Finance Commission (NFC) Award which is a glaring violation of the Article 160 of the Constitution, Pakistan Today has learnt reliably.

The 7th NFC Award was announced in December 2009 but official signing was held in March 2010. Therefore, the NFC award is due to be signed by the federal and provincial governments by March this year but now it is likely that the NFC would be announced by end of 2015 and implemented in the budget for fiscal year 2016-2017.

Moreover, the parties involved cannot ensure that the new award would be prepared within one fiscal year.

Per the law, the president had to constitute the 8th NFC Award by end of December 2014. The negligence of the officials concerned can be gauged from the fact that no meeting has yet been conducted to seek provinces’ proposals to finalise the recommendations for the award.

Article 160 of the constitution pertaining to the NFC states that within six months of the commencing day and thereafter at intervals not exceeding five years, the president shall constitute a NFC consisting of the federal finance minister (chairman), provincial finance ministers and such other persons as may be appointed by the president after consultation with the governors of provinces.

IMPLICATIONS:

The government’s failure to constitute the 8th NFC Award may also jeopardise the loan agreement with International Monetary Fund (IMF). In the Memorandum on Economic and Financial Policies signed with the IMF, the government has committed to establishing a new NFC by end of August 2016 – a task that now seems impossible.

“The preparations may take more than a year. The consultations on the NFC award may consume the whole fiscal year to produce a consensus,” said Finance Secretary Dr Waqar Masood, adding that the government plans to complete the NFC award process by the end of the fiscal year 2014-15.

NO CONSULTATION WITH PROVINCES YET:

However, not only the deadline for the new award has been missed, even the first preparatory meeting for discussion on the provincial share in the revenue collected has not been held. The government could not convene the meeting for the NFC scheduled for December 16 as Finance Minister Senator Ishaq Dar had left for a five-day visit to Japan on December 12

“The four chief ministers had been invited to attend the meeting on December 16 but due to the finance minister’s busy schedule, the meeting could not take place,” a well-placed source said, adding that the government believes that consultation with the provinces may continue for the entire year.

“At least three out of four provinces have reservations over the federal government’s plan to impose general sales tax (GST) on services as an integrated mode, which aims at reassigning GST on services to Federal Board of Revenue (FBR) instead of the provincial governments. Sindh Board of Revenue has already been established,” the source said.

PROVINCES FEAR OF BEING DEPRIVED OF RIGHTS:

The 7th NFC award granted 57.5 percent of most of the revenues generated to the provinces, along with a substantial devolution of spending responsibilities and taxation authority in agriculture, property and services. However, provinces think that the federal government wanted to usurp their share in tax collection.

The source added that the provinces plan to convey their concerns to the federal government, stating that the GST on services was a provincial subject enshrined in the constitution of Pakistan.

“Any attempt to take away the collection powers of this tax from the provinces, would mean a violation of constitution,” the source said, adding that the provinces believe that under the 18th constitutional amendment, the right to collect GST had been devolved to the provinces but it seems the federal bureaucracy wanted to reverse the tax collection decision in violation of the constitution.

FEDERAL GOVERNMENT AIMS AT A NEW AGREEMENT:

The source said that the government will seek a new agreement with provinces to ensure that the terms of fiscal decentralisation find a balance between devolution of revenue and expenditure responsibilities and are consistent with the imperatives of macroeconomic stability.

“The government also plans to seek technical assistance from international partners on best practices in sustainable federal-provincial fiscal relations,” the source added.

When contacted, Finance Ministry Director General (Media) declined to comment.

However, a ministry official requesting anonymity, said that the finance minister had twice written to the chief ministers to confirm their participation in the first preparatory meeting for NFC but the provincial governments did not respond.

“Consultation with provinces takes a long time and it is likely that the government may not be in a position to implement the 8th NFC Award in the next budget,” the source added.