LAHORE: The federal government will enter into negotiations with the provinces next month for determination of a new formula for vertical division of the divisible tax pool under the new National Finance Commission (NFC) with an open mind, said federal Finance Minister Asad Umer on Monday.

“We’re not starting discussions (with the provinces on the 9th NFC award) from a ‘fixed position’,” said the minister during his interaction with reporters at the Lahore Chamber of Commerce and Industry.

He was responding to a question whether the federal government planned to ask the federating units to give up 7pc of the undivided divisible tax pool for meeting development and security expenditure of the erstwhile Federally Administered Tribal Areas (Fata), Gilgit-Baltistan and Azad Jammu and Kashmir as demanded by the previous government at the start of the discussions for the new award.

“In the first meeting (of the reconstituted 9th NFC scheduled for February 6), we will explain to the provinces the economic and financial issues confronting the country and try to build up a consensus on the points that need to be addressed in the next NFC award,” he said.

Finance minister says gap between positions of govt, IMF has significantly reduced in recent weeks

The 9th NFC has been facing a deadlock over the Centre’s demands since July 2015. Because of resistance from the provinces, the Pakistan Muslim League-Nawaz government thought it better to delay the discussions on the new award until after the election. The Pakistan Tehreek-i-Insaf recently reconstituted the commission to start negotiations afresh.

The last award, which distributes federal tax resources both vertically between the federation and the federating units and horizontally among the provinces for five years, was signed in December 2009. Effective since 2010-11, the award is often described as historic as it was agreed upon after a lapse of 20 years and drastically increased the combined provincial share from the pool that, under the Constitution, could not be revised down.

In addition, the last award also changed the formula for resource distribution between the provinces and allowed them to collect provincial sales tax on services, which helped Punjab and Sindh to substantially raise their provincial tax revenues.

Some, including the International Monetary Fund (IMF), have repeatedly called for a review of the formula for vertical division of the divisible pool resource, insisting that the reduced federal share from it was one of the major reasons for growing federal fiscal deficit. Critics have suggested that the provinces chip in a substantial amount from their share to fund certain federal functions such as expenditure on development of the ex-Fata districts, GB and AJK as well as on internal security.

IMF

Responding to another question, Mr Umer said the government wanted to finalise its negotiations for a bailout with the Washington-based multilateral lender sooner than later. “Our discussions with the Fund for the loan are ongoing,” he said, claiming the gap between the two sides had significantly reduced in recent weeks.

“The IMF has moved away from its earlier position and closer to ours. We want to close the deal sooner than later but will not accept any condition detrimental to the interests of Pakistan,” the minister asserted. He said the size of the loan being negotiated with the IMF did not matter much as “we need this programme for obtaining funding from the other multilateral lenders”.

He was confident that the government would achieve its revenue target for the present financial year despite a shortfall of Rs172bn in tax collection during the first half of the financial year.

Officials agree that it was nearly impossible to fill the collection gap and the government planned to bridge the shortfall for meeting its budget deficit target of 5.1pc of GDP mainly by recovering half of the unpaid gas infrastructure development cess (GIDC) of Rs400bn or more from the industry through an out-of-court settlement of the issue.

Pakistan Banao Certificates

The minister said the government planned to launch Pakistan Banao Certificate on Wednesday to raise (foreign currency) funds with the help of overseas Pakistanis. He said it was not a bond, but an open-ended fund that would provide overseas Pakistanis a platform to invest their savings at a good rate as well as serve their country.

Published in Dawn, January 29th, 2019