Finance Minister Ishaq Dar took the case for cutting the provinces’ share in the divisible pool to the parliament for ‘rebalancing’ revenue-expenditure responsibilities.

In his budget speech last Friday, he attributed a three-year delay in the new National Finance Commission (NFC) award to provincial resistance in sharing the costs of financing security and special federally administered regions like AJK, Gilgit-Baltistan and tribal areas.

And he had a reason to raise the bar — discussions at the level of NFC, Council of Common Interests (CCI) and National Economic Council (NEC) did not make any headway over the past eight months.

“The delay in decision of 3+3 of the Gross Divisible Pool for this purpose has been the cause for delay in finalising the NFC Award”, he complained in his budget speech requesting “fellow parliamentarians to lend their support vis-à-vis the provincial governments for this just and fair allocation”.

He said large security operations like Zarb-e-Azb required vast sums as a national duty against terrorism for which provision of resources was the responsibility of the entire nation. The centre has been paying Rs90-100 billion each year for the last three years directly, for spending on military operations and indirectly on rehabilitation, return and reconstruction of the area.

Mr Dar said the National Security Committee had recommended 3pc of gross divisible pool diversions to this national duty; and is pending before CCI and NFC. In the recent NEC meeting last week, the prime minister of AJK, the chief minister of GB and the KP governor “made an impassioned plea that they were also part of Pakistan. They also have a right on the divisible pool”, he insisted.

The 8th NFC did not give any award. The 9th NFC has since failed to make any progress resulting in a continuation of the 7th award well into the 8th year

His pleadings were coupled with estimates for transfer of about Rs2.384 trillion to four provinces next year, 12.4pc higher than Rs2.12tr revised estimates for the current year. This is a substantial amount when seen in the context of total tax revenues of Rs4.3tr for next year.

Under budget estimates, the four provinces would get Rs2.27tr next year out of the divisible pool, about 13.7pc higher than revised estimates for the current year at Rs1.99tr that has dropped by Rs48bn (2.34pc) because of the inability of the Federal Board of Revenue to achieve its target of Rs3.621bn by Rs100bn.

In addition to this, straight transfers to the provinces for next year are estimated at Rs115bn — lower than the current year’s estimated collection of Rs125bn. These transfers include royalty on crude oil and natural gas, gas development surcharge and excise duty on natural gas, gas development surcharge and excise duty on gas.

As a consequence, Punjab would get the biggest share of Rs1.162tr next year against Rs1.02tr. Sindh’s total share for next year is estimated at Rs612bn compared to Rs554bn this year. KP would get Rs390bn next year compared to Rs343.5bn while Balochistan’s share will go up to Rs220bn from Rs203.6bn this year.

The two houses of parliament were informed that the 7th National Finance Commission (NFC) Award of 2010 was currently in place. The award had promised joint effort by the centre and provinces to achieve 15pc tax to GDP ratio by 2014-15. Through it, the financial autonomy to provinces was enhanced by increasing their divisible pool share from 50pc to 57.5 from 2011-12 onwards.

A special feature of the Award was recognition for requirements of Balochistan. Its share from the divisible pool was guaranteed at Rs83bn in financial year 2010- 11- double from a year before. It was guaranteed that Balochistan would receive its share in the divisible pool based on the budgetary projections instead of actual FBR collection and shortfalls on FBR revenue would be compensated by the centre.

Sadly, the 8th NFC was constituted on 21st July, 2010, but it did not give any award. The 9th NFC was constituted on April 24, 2015 has failed since to make any progress resulting in continuation of 7th award well into 8th year.

Earlier, the prime minister had pleaded a special case for AJK, Fata and GB in the NEC meeting on May 19 with direction that a special formula be designed in the NFC for allocation of funds for these areas that could not be given a provincial status due to legal complications but were part of Pakistan and hence their people required to be treated like the people of four provinces.

He then directed the increase in block allocations for AJK to Rs22bn from the current year’s allocation of Rs12bn. This was the largest increase in history for the region that gave an impressive majority to PML-N in last year elections to speed up the pace of development. Likewise, the block allocation for GB was jacked up from Rs9bn to Rs15bn while Fata’s share was increased to Rs24.5bn from Rs21bn this year.

The finance minister has been building a case for a seven per cent cut in gross divisible pool to have control over at least Rs250-300bn additional resources. Of this, 3pc has to be spent on additional security requirement for the China-Pakistan Economic Corridor (CPEC) and other development projects, 3pc for equitable socio-economic development of tribal areas and 1pc for Azad Kashmir and Gilgit-Baltistan.

This means the centre wants the provinces to get 57.5 pc share of the divisible pool out of 92pc, instead of the existing 99pc — 1pc already being allocated for Khyber Pakhtunkhwa as compensation for damages arising out of the war on terror.

Published in Dawn, The Business and Finance Weekly, May 29th, 2017