LAHORE: Eminent economist Dr Hafiz Pasha has said a true federation of Pakistan came into being as a result of 18th Amendment which empowered the provinces to play their due role in development and public welfare.

However, the benefits of devolution could not reach masses as the provinces lacked ability to spend on their ambitious development plans, said Dr Pasha at a function arranged by Institute for Policy Reforms (IPR) on Tuesday to highlight role of provinces in national development in the wake of new fiscal plan.

Presenting an account of the dynamics of fiscal and governance decentralization, Dr Pasha also reviewed performance of the provinces while suggesting them to enhance resource generation.

“Combined tax to GDP ratio of provinces is a paltry 0.7 per cent of GDP. It should be raised by 1 per cent of GDP in the next three years. Provinces should focus on agricultural income tax, urban immoveable property tax and provincial sales tax on services that have a large tax base and potential for progressive incidence,” said Dr Pasha, the managing director of IPR.

He said despite low share in revenue collection, high resource transfers had increased expenditure by provinces to one-third of total public expenditure nationally. Provinces have a share of 82 per cent in educational and 92 per cent in health services.

However, the provinces have no ability to design good projects to utilize development funds and instead build up large cash surpluses. Inadequate spending resulted in a large combined cash surplus of Rs217 billion by March 2014, he said while recommending effective implementation of on-going development projects. Through early completion of projects on which 75 per cent expenditure have been made, avoiding the practice of block or lump sum grants without new projects and by streamlining procedures for approvals and releases, the objective could be achieved.

Dr Pasha said provinces might allocate a minimum of 15 per cent of their development budget to power projects, enhance allocations for the water sector and prepare medium term development framework.

Commensurate with increased resources, provinces should prioritize implementation capacity and institutional strengthening. Revision of assessments based on price indexation could increase total collection without the need for significant administration inputs and without increase in burden on the taxpayer.

“The federation and the people of Pakistan had empowered the provinces to play their due role in development and citizen welfare. Now it is up to the provinces to step up and meet their responsibilities by expanding the coverage and improving the quality of basic services like education, health and water supply and sanitation,” he said.

Earlier, IPR Chairman Humayun Akhtar Khan referred to the two major developments that have increased importance of provincial governments. The NFC of 2009-10 increased resource transfer to provinces as the 18th Amendment enhanced their autonomy. Provinces may now show greater ownership in enhancing revenues as well as demonstrate improved performance.

Published in Dawn, June 11th, 2014