ISLAMABAD: In a major politico-legal retreat, the federal government on Wednesday denotified the adviser to the prime minister on finance and revenue and the finance secretary as members of the National Finance Commission (NFC) and gave up a number of its terms of reference (ToR).

The decision was taken after the government’s May 12 notification about constitution of the 11-member NFC faced legal challenges in various high courts, along with a long list of ToR envisaging fresh specific responsibilities and expenses to be shared by the provinces.

A fresh notification for the nine-member NFC and revised ToR was submitted to the Islamabad High Court on the basis of which the court disposed of a petition of the opposition PML-N challenging the locus standi of Adviser to the PM on Finance and Revenue Dr Abdul Hafeez Shaikh and the finance secretary as NFC members.

“The new notification is in line with the Constitution,” said finance ministry’s spokesman Mohsin Mushtaq Chandna in a brief response to questions. Asked if the prime minister holding the finance portfolio would now open the NFC dialogue or Dr Shaikh would be made minister for finance through Senate, Mr Chandna said he would not speculate.

Govt denotifies finance adviser, secretary as commission’s members, gives up a number of its terms of reference

Under the fresh notification, Javed Jabbar has also been replaced by Dr Kaiser Bengali as non-statutory member from Balochistan on the NFC. Mr Jabbar had resigned last month after criticism from some Baloch politicians that he did not belong to the province. Interestingly, Dr Bengali, who had served as non-statutory member from Balochistan, is also a non-Baloch.

The reconstituted nine-member NFC is now led by the federal minister for finance and comprises four provincial finance ministers, besides non-statutory members Tariq Bajwa from Punjab, Dr Asad Sayeed from Sindh, Musharraf Rasool Cyan from Khyber Pakhtunkhwa and Dr Kaiser Bengali from Balochistan.

The government has now deleted a number of specific subjects from the previous notification and added a fresh subject suggesting the Centre would like the provinces to share the financial burden of national development projects and take some unspecified additional fiscal responsibilities.

One of the key subjects removed from controversial May 12 notification pertains to “exploring ways to reduce losses of state-owned enterprises and agreeing on mechanism for sharing these losses between the federal government and the provincial governments”.

Another item deleted from the commission’s ToR includes “assessment and allocation of resources to meet expenditures related to Azad Government of the States of Jammu and Kashmir, Government of Gilgit-Baltistan and newly merged districts of Khyber Pakhtunkhwa [erstwhile Fata]”.

The federal government has also given up three more specific items relating to (i) “assessment and allocation of resources to meet expenditures made on security and natural disasters/calamities”, (ii) “assessment of total public debt and allocation of resources for its repayment” and (iii) “rationalisation of subsidies given by the federal and provincial governments in their budgets and agreeing on a mechanism to finance them”.

In order to cover the above-mentioned areas, three broad ToR have been included in the new notification. These include issues relating to sharing of financial expenses incurred or to be incurred (i) “by the federation in respect of subjects and matters falling within the domain of the provinces and vice versa”, (ii) “by the federation and/or provinces in respect of trans-provincial matters” and (iii) “for national projects to be shared by the federation and the provinces”.

The ToR relating to clause 2 of Article 160 of the Constitution that required the 10th NFC to distribute between the Centre and the provinces the net proceeds of five major tax categories as defined in clause 3 of Article 160, besides making grants-in-aid by the federal government to the provincial governments would remain unchanged.

The NFC will also set powers and conditions for the federal and provincial governments for borrowing, besides any other matter to finance referred to it by the president.

Even the revised NFC is anticipated to face a major legal challenge in the absence of formal notification of the results of the National Population Census 2017 owing to concerns from various stakeholders, particularly regarding population in Karachi.

Talking to reporters outside the Islamabad High Court, PML-N leader Khurram Dastgir Khan, who had challenged the government notification about constitution of the NFC, termed the decision a moral and constitutional victory.

He said the constitutional process had not been followed while issuing the May 12 notification. He said that under the Constitution, consultation with the governors was mandatory for appointment of the NFC members from provinces, but it was ignored. He said the finance ministry had been provided a complete opportunity to present its record before the court, but it failed to do so.

The PML-N leader said a similar petition had been taken up by the Balochistan High Court which later suspended the nomination of the adviser on finance as well as many terms of reference, but they had requested the court to declare the whole notification null and void.

He said the PML-N had challenged the NFC notification considering it an attack on the Constitution and resources of the provinces. He said the government had informed the court that it had issued a new notification on July 21 in accordance with Article 160 of the Constitution. He said his party was reviewing the new notification and would make a strategy after reading it.

The 9th NFC was constituted on April 24, 2015 and reconstituted a couple of times in 2016, 2018 and 2019 owing to change in governments and replacement of non-statutory members, but it failed to conclude a new award as no meaningful and structured dialogue could be sustained.

As a result, multiple calls from various quarters, including the finance ministry, the armed forces and the International Monetary Fund, to rebalance the transfer of larger chunk of divisible pool resources to the provinces under the 7th NFC Award have remained unaddressed.

Also, the 7th NFC Award announced in 2009 continued with annual extensions and remains in place even now instead of constitutional term of five years that came to an end on June 30, 2015. As per the Constitution, provincial shares in each NFC award could not be reduced.

Under the 7th NFC Award, the four provinces are collectively entitled to 57.5 per cent of divisible pool taxes, besides revenue from income tax, wealth tax, capital value tax, general sales tax, customs duties and federal excise. The provincial governments get their horizontal shares on the basis of population, poverty, revenue collection and inverse population density, allowing Punjab to get 51.74pc, Sindh 24.55pc, Khyber Pakhtunkhwa 14.62pc and Balochistan 9.09pc share.

Published in Dawn, July 23rd, 2020