The major political parties are set to unveil their election manifestos in the coming week, merely three weeks before the general elections on Feb 8. Sindh and Khyber Pakhtunkhwa are not receiving their rightful gas royalties from the federal government and there is a recurring violation of the constitutional National Finance Commission (NFC) Award.

However, politicians are focused on winning over constituents through popular rhetoric, while other stakeholders, including the business community, are highlighting these violations.

Political parties use catchy slogans like building houses and generating jobs, not constitutional infractions to protect provinces’ rights to resources and the level playing field for businesses. Manifestos are the litmus test for major political parties—PTI, PPP and PML-N. Manifestos will disclose whether there is a discussion or a way to resolve these issues, rather than simply paying lip service.

After the 18th Amendment, the two provinces protested about not receiving enough oil and gas royalties. The federal government is reluctant to settle this issue. Since 2018, the 7th NFC Award has been violated by depriving the Federally Administered Tribal Areas (FATA) of their rights. The spirit of NFC was tarnished by the federal government’s decision to impose a petroleum development levy (PDL) while ceasing to collect sales taxes since 2022 on petroleum products. The decision also reduced the transfer of resources to provinces under the NFC award.

Business community eyes election manifestos to end fiscal uncertainty

Gas royalty

Article 158 mandates that in the case of natural gas, as against the mineral and oil, the province in which a well-head is situated shall have precedence over other parts of Pakistan in meeting the requirement from the well-head situated in that particular province.

Contrary to this, the federal government has fixed a uniform rate for Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Ltd (SSGCL). The price of gas for industry has been hiked from Rs1,238 mmBtu to Rs2,400 mmBtu. Both provinces—Sindh and KP – produce more gas than they need, and the choice to mix imported RLNG has driven up the cost significantly. As a result of the decision to supply blended gas to enterprises in KP and Sindh, the price of industrial gas further went up to Rs3,200 mmBtu for industries.

Many businesses, notably those involved in textile production, were forced to shut down as a result of this constitutional infringement in these two provinces. The caretaker government of KP and the Karachi Chamber of Commerce and Industry were vocal in their opposition to these infractions.

First violation

Concerns exist that the devolution plan and NFC Award will be undone. It was feared under the PML-N from 2013 to 2018 and then PTI from 2019 to 2022. The only major political party supporting decentralisation while in opposition was the PPP. After joining the PDM in 2022, the PPP did not make any effort to enforce the constitution during its 16-month rule.

Since May 2021, the government has steadily cut sales tax on petroleum, which was abolished in Dec 2021. Sales tax on POL products ended in February 2022, effectively denting the revenue share of provinces.

To compensate, the federal government collects PDL, with an FY24 target of Rs1 trillion. If petroleum goods have a sales tax, provinces should have received half of this money. Since the PDL levy, PPP has made few statements when remained in power.

Second violation

After the 25th Amendment, the federal government is reluctant to increase the province’s divisible pool share from 14.62 to 19.64pc in the wake of Fata-KP merger. Previously, KP owned 14.62pc and Fata 5.02pc. JUI-F was the only political party opposed to this merger, but it showed that the government’s plan was bad for the region’s development and NFC contribution. The major parties ignored this infringement, but the KP caretaker government frequently raised it with the PDM and eventually the caretaker federal government.

Centre’s concerns

There is no income tax or sales tax on the agriculture sector, which accounts for 21pc of GDP and is provincially regulated. The provinces are collecting a few billions in agriculture income tax, which has been a larger source of income in recent years. The political elites, supported by prominent landowners, resist agriculture taxes while severely taxing corporations.

Despite an unprecedented increase in real estate prices, provinces are failing to tax urban immovable assets. Provinces control 58pc of GDP from the services sector, with inadequate tax collection.

The question is whether this failure justifies the federal government’s continued violation of the Constitution.

One criticism against the PTI government was that it would rescind the devolution law, but even the PMLN-led coalition government did not do anything to stop these constitutional violations.

With a plan to ‘reform’ the 18th Amendment, the PMLN will share its manifesto on Jan 15 whereas the PPP’s document is also eagerly awaited, barring the 10-point agenda shared by its chairperson. Similarly, the PTI manifesto is still awaited.

These political parties must provide a clear path from resource allocation to federal and provincial tax hikes, not constitutional breaches.

Published in Dawn, January 14th, 2024