ISLAMABAD: Amid provincial opposition to finance additional federal responsibilities, the reconstituted 9th National Finance Commission (NFC) agreed on Wednesday to base next resource distribution award on sixth population census of 2017 and involve provinces in dialogue with the International Monetary Fund.

The maiden meeting of NFC, presided over by Finance Minister Asad Umar, also constituted six working groups on various subjects and agreed upon the need for additional resource mobilisation to face challenges of sustainable fiscal structure, equitable social development and poverty alleviation.

While the larger provinces – Sindh and Punjab – questioned the performance of the Federal Board of Revenue (FBR) and advocated more of a collection role to provinces, Sindh specifically opposed any move to finance mainstreaming of the tribal region saying it was always a responsibility of the centre which should transfer its proportionate funding to Khyber Pakhtunkhwa.

Asad told media that the meeting did not discuss specific positions of the centre and provinces on the new resource distribution formula but deliberated mostly on their fiscal positions.

He said the provinces presented their initial views on NFC and all the stakeholders agreed upon the need for additional resource mobilisation.

He said the provinces were asked about issues they wanted to be deliberated upon under NFC and these were made part of the discussion list for which six technical working groups were created. The meeting decided to hold meetings on rotational basis at provincial capitals, starting with Lahore after six weeks. He said the meeting agreed to strengthen NFC secretariat at his ministry for improved research and export support.

Responding to a question, the minister said the commission decided to involve the provinces in the dialogue with IMF on fiscal matters. He added that 18th amendment was now part of the constitution, which could not be rolled back and the current government would fully implement the amendment.

Sindh Chief Minister Syed Murad Ali Shah said the meeting was told that provinces received lower transfers from centre when compared with the last year. He claimed that Sindh received Rs256 billion in first six months of the current year on account of straight transfers -- Rs60bn lower than last year.

In response to a question, Shah said Federally Administered Tribal Areas (Fata) had always to be the responsibility of federal government and its merger with KP should be financed on vertical share of the centre without affecting the provinces.

He said the NFC was told that collection of some taxes had significantly improved around 26 per cent when these moved to the provincial domain and hence some other revenue collection responsibilities, including sales taxes on goods to the provinces.

Punjab Finance Minister Makhdum Hashim Jawan said the meeting did not discuss transfer of sales tax collection on services to the centre from provinces and added that the revenue collection had improved significantly in Punjab and other provinces as well. Member Punjab Dr Salman Shah said the next award would be on the basis of results of 2017 population census when these are finalised.

He said the meeting also discussed the expenditures of NFC partners, what various governments needed to do and the revenue collection of stakeholders. The meeting also deliberated on circular debt and how over Rs30,000bn debt of federal government could be tackled.

Sindh Member NFC Asad Sayeed said serious concerns were expressed over the performance of FBR and the provinces demanded their role in revenue policymaking.

According to an official statement, Asad asked NFC members to also address critical issues related to developing a sustainable fiscal structure for centre as well as the federating units apart from resource distribution.

The meeting was given details on fiscal position of the Federal Government and federal fiscal operations and net revenues of both centres and provinces. The provinces gave their budgetary position and also dilated on issues faced by them in different spheres due to resource constraints, including the ever-rising burden of pension payments.

Provinces also demanded improved coordination on data sharing on oil and gas production and straight transfers and proposed fresh models of revenue generation. A representative from Balochistan highlighted fiscal challenges and the progress being made by them through inter-provincial cooperation and support. He also emphasised better and increased use of automation for revenue generation.

KP raised the issue of net hydel profit and difficulties being faced on account of funding required for retirement benefits of employees.

Secretary Finance Punjab called for improved coordination between federal and provincial authorities for timely data sharing. Member Sindh pointed out less transfers made under the heads “Straight Transfers” and proposed that data on this account be shared with provinces.

The meeting agreed that both the federal and provincial governments were under-resourced and that additional revenue was needed to meet expenses in different realms including socio-economic development activities.

The six working groups to make recommendations included Macroe­conomic Framework and Benchmarking, to be coordinated by Punjab; Vertical Distribution of the divisible pool taxes between federation and provinces including needs of AJ&K and GB to be coordinated by Federal Government; two groups on horizontal distribution of divisible pool taxes amongst provinces and straight transfers, coordinated by Balochistan; one on measures to simplify tax procedures and payment systems to facilitate businesses will be coordinated by Sindh; and integration/merger of Fata with Khyber Pakhtunkhwa would be coordinated by KP.

Sindh Chief Minister Murad Ali Shah, Punjab Finance Minister Makhdoom Hashim Jawan Bakht, KP Finance Minister Taimur Saleem Khan Jhagra, Federal Secretary Finance, provincial members and their secretaries finance as well Ministry of Finance officials attended the meeting.

Published in Dawn, February 7th, 2019