ISLAMABAD: The federal government has agreed in principle to authorise the government of Azad Jammu and Kashmir to have control over taxes collected in its territorial jurisdiction and meet about Rs12 billion of its fiscal deficit.

The decision was taken at a meeting AJK Prime Minister Chaudhry Abdul Majid had with Finance Minister Ishaq Dar here on Thursday.

Sources told Dawn that the AJK prime minister briefed the finance minister about financial difficulties faced by his government, including the Rs9bn fiscal deficit accumulated over the past few years and another Rs3bn deficit expected this year.

He told Mr Dar that while AJK’s revenue base was low, whatever taxes were collected in its territory were controlled by the AJK Council headed by the federal government, creating cash flow problems for the AJK government.

Chaudhry Majid also informed Mr Dar that under the Financial Arrangement Agreement of 1992, the federal government was required to bridge fiscal deficit faced by the AJK government in a given year.

The finance minister agreed that the control of taxes should be with the elected government and assured the AJK prime minister that the matter would be taken up with Prime Minister Nawaz Sharif after the coming federal budget.

AJK Finance Minister Chaudhry Latif Akbar, Federal Finance Secretary Dr Waqar Masood, AJK Chief Secretary Khizer Hayat Gondal and Finance Secretary Yousuf Khan attended the meeting.

Mr Dar directed the secretary finance and other officials to sit with the chief secretary and finance secretary of AJK to reconcile figures on fiscal deficit and assured the AJK prime minister that the federal government would honour its commitment about meeting fiscal deficit of AJK.

The meeting also discussed the issue of over Rs30bn electricity dues outstanding against AJK. It was informed that the AJK government was getting electricity from distribution companies at about Rs3 per unit under an agreement with the federal government in lieu of water use charges and royalties and net hydel profit on account of Mangla Dam.

The AJK government was selling power to its consumers at about Rs12 per unit, but the recovery was poor because of transmission losses by distribution companies and poor metering process of AJK’s electricity department.

The AJK prime minister told the finance minister that his government had maintained fiscal discipline to a maximum level and stressed that education and health facilities needed to be financed after reconstruction of buildings by the Earthquake Reconstruction and Rehabilitation Authority.

Published in Dawn, May 23rd, 2014