Punjab for greater fiscal autonomy
“We have long been pursuing with the federal government two issues that are critical for enhancing the provincial resource base of Punjab. First one concerns our share from the net hydro profits of the Ghazi Barotha Hydro Power Project and the other relates to the expansion in the scope of the provincial sales tax.”
We are going to raise these and other issues, which are affecting pace of development in the province, again at the new NFC proceedings whenever these commence,” a senior finance department official, who did not want to be identified, said.
The PPP-led coalition has already constituted the new NFC for the fresh determination of the vertical distribution of the tax resources between the federal and provincial governments as well as horizontal sharing of the provincial portion between the federating units. But its first meeting is yet to be scheduled.
As prime minister Yousuf Raza Gillani and some of his cabinet ministers have indicated their intention to change the population based formula for inter-provincial distribution of funds to also include other indicators like tax collection and economic backwardness in it. On the other hand, Punjab is likely to persist with its stance on the continuation of the population based distribution of funds.
“The existing formula is a great equaliser,” the official said. But, he hastened to add, if the inter-provincial resource distribution formula is modified “Punjab will insist that it is given its share, including arrears, from the hydro profits of the GBHP project and complete transfer of the provincial sales tax to the provinces. Also we shall press for the expansion in the scope of provincial sales tax to services like telecommunications and financial services”.
Punjab is being denied its share from the net hydro profits of the GBHP project on the pretext that the late provincial chief minister Arif Nakai had forgone the right in the early 1990s to facilitate its construction.
“That was illegal and unconstitutional. No chief executive could do so in his personal capacity because it means compromising on the rights of the people of the province. They should get what the constitution guarantees them,” the official said.
On the issue of provincial sales tax on services, the federal government has taken a position quite opposite to the stance of Punjab and Sindh, which want its complete transfer to the provinces. Islamabad says it is not possible to resolve the issues that may crop up if the provinces seek to tax the large, revenue generating inter-provincial services. The finance department official reminded that the provincial finance ministers who had met in June in Lahore ahead of the budget for the year 2008-09 had also agreed to this and called upon Islamabad for the transfer of collection this tax to the provinces and expansion of its net.
In addition, Punjab is also trying to persuade the federal government to allow provinces a greater say in the identification and implementation of development projects and schemes undertaken in the provinces under the Public Sector Development Programme (PSDP).
“This is also another area where all the four federating units have developed a consensus,” the official said.
A senior Punjab Planning and Development Department official, who also wanted not to be identified, said the proposal had been made to reduce overlapping of development schemes in the provinces.
“Besides, the provinces are better equipped to know and prioritise the needs of their people. We want optimal use of federal and provincial funds for development and improvement of public service delivery. That goal requires a closer co-ordination between the federal and provincial governments,” he said.
The official, who described the relations between Punjab and Islamabad as cordial and co-operative, said the letter written by Chief Minister Shahbaz Sharif to the federal government to fully fund the development schemes that may be announced by president or prime minister in future in the province should also be seen in this context.
“It doesn’t have any political connotations; it is motivated purely by the feelings that such schemes and projects put unnecessary burden on the provincial resources and we have to make adjustments and compromises on our priorities to fund these projects,” he stated.
“That is precisely why we want that such schemes should be totally funded from the federal funds.”
The letter has reportedly expressed the provincial government’s inability to provide funds from its resources for development projects that may be announced by president or prime minister.
Currently, both the federal and provincial governments equally share the cost of the schemes that are initiated on the presidential or prime ministerial directives.
“This practice compromises provincial development priorities and distorts its development planning,” the P&D official said. “The new government is opposed to such practices because it erodes provincial autonomy in the sphere of development, and, of course, politics,” the official said.
The officials reject that the provincial government’s demand for greater financial autonomy could unleash a tussle between the federal government and Punjab.
“It isn’t correct to presume that these demands and suggestions are going to lead the federal and provincial governments to the path of confrontation. Our demands and suggestions for greater financial independence and improvement in co-ordination and co-operation between the federal and provincial agencies have been made in good faith and purely from the point of view of stopping waste of meagre resources for development and public service delivery.”
“There is no politics involved and there is no need to read too much. Moreover, most of the demands and suggestions are not new ones. If these didn’t create any acrimony between Islamabad and Lahore in the past, why would they in future?” the P&D official asked. “That is why we have received very sympathetic response from the federal government on our issues and concerns,” he said.