ISLAMABAD: Finance Minister Ishaq Dar on Monday criticised provinces for “poor” tax collection from the agriculture sector which forms 21 per cent of the country’s gross domestic product (GDP).

On the first day of weeklong deliberations on federal budget by the Senate’s standing committee on finance led by Senator Nasrin Jalil, the minister also lamented that the provinces were not ready to empower the federal government to tax agriculture income despite their low collection from the sector.

The finance minister had figures on his fingertips to prove his point. Punjab has collected only Rs700 million and Sindh Rs300m. “It’s a matter of concern,” he said.

His criticism of the lacklustre performance by the provinces over revenue collection through the country’s one of the three major sectors has come at a time the four provinces are about to announce their provincial budgets ahead of formal opening of talks on 8th National Finance Commission (NFC) award.

The finance ministry has been critical of the 7th NFC award since it was signed by then finance minister Shaukat Tarin in 2009, saying it was left with no fiscal space after meeting mandatory obligations of debt servicing, defence and running of the government to take up infrastructure projects or improve the living conditions of the people.

Increased provincial share in the federal divisible pool in the 7th NFC award to expire on June 30, 2015 was based on commitment by the provinces in 2009 that they would take effective steps for increased revenue collection through agriculture and real estate to increase tax-to-GDP ratio to 15pc by the terminal year (2015). The ratio has since dropped below 10pc.

Responding to a question, Mr Dar said it would be violation of the Constitution to collect tax on agriculture income through Finance Bill.

The finance minister declined to consider further increase in salaries and pensions saying there was no fiscal space for such a proposal. “The situation would remain unchanged for the next three years.”

He was responding to criticism that 10pc increase in salaries was insufficient. He insisted that the government had linked increase in salaries and pensions to inflation and had in fact given more than the rise in inflation.

Ms Jalil said the federal budget did not offer anything to the poor and total tax collection seemed to have stagnated at 8pc of the GDP as the Federal Board of Revenue (FBR) “has completely failed to broaden the tax net”.

She said load-shedding continued unabated like in the past with no sign of improvement during the last one year. She said it was unclear how the government planned to manage electricity and gas shortages.

Mr Dar insisted that tax authorities would be able to achieve the revenue collection target of Rs2.275 trillion, which has been reduced twice, for the outgoing fiscal year.

Asked why the government had not allocated funds for circular debt that stood in excess of Rs300 billion now, the finance minister said his ministry would not pay for the leakages and less recoveries by the Ministry of Water and Power and its power companies.

He said the power ministry and its companies would have to make extra efforts to improve recoveries because the finance ministry would also shoulder the price differential among various consumer groups.

He said the government would provide a subsidy of Rs285bn to protect consumers using 200 units monthly. He said the federal government would start deducting 25pc of provincial electricity bill through federal adjuster from July 1 under a decision of the Council of Common Interests.

He assured the committee that 10,000-11,000MW electricity would be added in the system over the next three years and both Dasu and Diamer Bhasha Dam would be constructed. Responding to a question, he said Pakistan did not need to take a no-objection certificate (NOC) from India to construct of Diamer Bhasha Dam.

Mr Dar reiterated that the country’s 50pc (90m) population lives below poverty line on the basis of a daily income of two dollars. For this, the government has allocated Rs118bn for the Income Support Programme to provide financial support to over 5m families, he said.

The committee criticised the government for increasing gas infrastructure development cess (GIDC) through budget, saying it did not meet the criteria for a money bill and should have been brought to the parliament as a separate bill if the government wanted to increase it. But Mr Dar said the GIDC was part of the money bill since its very introduction a few years ago.

Published in Dawn, June 10th, 2014