LAHORE: The reconstituted ninth National Finance Comm­ission (NFC) on Friday rejected a demand from Khyber Pakhtun­khwa to make an interim arrangement for additional funds (from the federal tax divisible pool under the 2009 Award) required by the province to finance the merger of the erstwhile Federally Administered Tribal Areas (Fata) with it.

The demand was made by the north-western province during the second meeting of the reconstituted NFC held at the Punjab Civil Secretariat with Finance Minister Asad Umar in the chair. Sindh Chief Minister Syed Murad Ali Shah, who also holds the portfolio of provincial finance minister, and Balochistan Finance Minister Arif Jan Mohammad Hasni did not attend the meeting.

The Khyber Pakhtunkhwa members of the commission were plainly told by other stakeholders that the present commission, which is deliberating on new resource distribution award for division of tax divisible pool, did not have “constitutional powers or authority” to make any interim arrangement to oblige them.

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The federal government was asked by Sindh to either bear the additional expenditure from its own pocket or levy a special tax as a short-term measure for raising the funds for the purpose of supporting the merger in the interim period till the commission finalised the new award. However, the commission agreed to hold its next meeting before the end of April to further discuss the issue of additional funds for Fata merger and the taxation aspects of the Ease of Doing Business initiative as the meeting decided to work on a single portal for all taxes — federal and provincial.

Khyber Pakhtunkhwa wants the commission to find some mechanism under the NFC or outside it to create room for funds for the erstwhile Fata region needed in the next financial year. Its representative told the state-run Pakistan Television that the province wanted a decision before budget for the next fiscal.

“We are hopeful that the entire country will contribute to development of erstwhile Fata,” provincial Finance Minister Taimur Khan Jhagra said, adding the issue had been made part of the priority agenda of the NFC.

It may be recalled that under the seventh award, which is still operative under a presidential order even after the expiry of its five-year term in 2015, Khyber Pakhtunkhwa is receiving one per cent additional funds from the net tax divisible pool resources before its vertical division between the federation and the federating units to make up for the losses to its economy because of years of terrorism in that province.

The federal government wants the next award to be signed by the end of 2019 so that the 2020 budgets could be based on the new resource distribution arrangements. But conversations with the provincial members of the commission clearly indicate that the “federal wish was impossible to fulfil because of complexities involved in the resource distribution” and it may take longer than is assumed by Islamabad.

Balochistan on the other hand has also called for additional funds with a view to compensating it for the growing security expenditure that has surged to Rs38 billion from Rs5bn in 2010. “The theatre of terror has shifted from Fata to Balochistan. The provincial expenditure on security has multiplied as thousands have died in terror attacks in the last two years; this steep growth in security expense is not sustainable [for the provincial economy] and we want a similar treatment [under the next award] that was given to Khyber Pakhtunkhwa,” Balochistan NFC member Mahfooz Ali Khan told Dawn after the meeting.

With its present share from the tax pool and terrorism affecting its economy adversely, he said, it was difficult for Balochistan to move ahead and narrow the development gap with other federating units. “We must find out-of-the-box solutions to bridge growing regional disparities between the provinces.”

Quetta also wants to be compensated for its natural gas being used by other provinces since its discovery in 1954. “The people of Balochistan did not get their first gas connection till 1984. We must be compensated for our reserves that are depleting because of [excessive] use [by consumers in the rest of the country]. We also want to be compensated for the lower GDS [gas development surcharge], which is the differential between wellhead price minus gas subsidy given to different industries and sectors.”

Apart from funds for the Fata region, the federal government is also looking for significant financial support from the provinces to finance the development projects in Gilgit-Baltistan and Azad Jammu and Kashmir, as well as creation of 100 army battalions for the special security force for the China-Pakistan Economic Corridor (CPEC). The provinces have nevertheless refused to oblige Islamabad, pointing to the fact the NFC was for only the federating units.

The smaller provinces however are willing to fund the CPEC security force according to their share in the investments under the multi-billion-dollar initiative. “There was a broad consensus among the members that no unit gets additional share at the expense of the other,” Sindh statutory member Asad Sayeed commented.

“The meeting was held in a very cooperative atmosphere. But the responsibility of continuation and maintenance of this cooperative environment in future eventually lies with the federation.”

Mr Umar told media that the meeting discussed reports from the six sub-groups formed during the first meeting last month on various aspects of resource distribution and all the stakeholders put the questions they had or recommendations they wanted to make on the table for deliberation in the coming meetings. “We also decided on how to move forward [for achieving consensus on the next award],” he added.

A handout issued by the federal finance ministry later said the main focus of all sub-groups’ deliberations was transparency, harmonisation and sharing of data. “The members of the commission appreciated the work done by the six sub-groups. It was agreed that the sub-groups would continue their deliberations and present their reports in the subsequent meetings. [Mr Umar] suggested that deliberations should include incentives for poverty alleviation and social sector spending,” it added in a reference to yet another federal demand for provincial financial support for the Benazir Income Support Programme (BISP).

“The representative of Khyber Pakhtunkhwa proposed a framework for NFC deliberations aiming at equalising fiscal resources across the federating units, equal access to public services for all citizens of Pakistan and expenditure efficiency at all levels of the federation. All members agreed on the framework and lauded the efforts of Khyber Pakhtunkhwa in this regard,” the handout said. Mr Umar reiterated that the provincial governments would be engaged in the discussion with the IMF and suggested that each federating unit should nominate a focal person for data sharing to facilitate the working of the sub-groups.

Sources present in the meeting said the federal finance minister had offered to hand over oil and gas assets to the provinces without their losses. “But he appeared to be at odds with his team on these matters,” a participant said on condition of anonymity and added: “The commission will deliberate on the offer in the future meetings.”

Published in Dawn, March 30th, 2019