The government has decided to end the constitutional protection of provincial shares in the National Finance Commission (NFC) Award, with the matter set to be discussed in the upcoming ‘kickstart’ meeting of the NFC later this month.Finance Minister Muhammad Aurangzeb, told media that discussion on the issue would take place at the constitutional forum of the NFC.
“This discussion belongs where the National Finance Commission comes in. This entire discussion will take place at the kickstart meeting of the NFC, which is the relevant constitutional forum,” he said in response to a question about PPP Chairman Bilawal Bhutto-Zardari’s statement regarding the removal of protection to provinces over their NFC shares and the reversal of population and education subjects to the centre.
The NFC Award determines the distribution of federal revenues between the federation and the provinces. Under the 18th Amendment and the 7th NFC Award, the provinces’ share in the divisible pool was significantly increased, a move that has since remained a point of contention between the centre and federating units.
The latest development suggests the federal government may seek to revisit the current formula amid mounting fiscal pressures and growing federal expenditure on debt servicing and defence.
Any move to alter the provincial share is likely to trigger political debate, particularly from Sindh and Khyber Pakhtunkhwa, where the PPP and PTI have repeatedly warned against centralising financial powers.
The minister said the kickstart meeting of the NFC meeting was being convened later this month which was postponed due to floods at the last moment earlier in September.
He did not announce a date for the first meeting, but it was tentatively planned for November 17. The PPP leader had announced earlier in the day that Prime Minister Shahbaz Sharif had sought his party’s support for passing proposed 27th constitution amendment which among other things sought “removal of protection of provincial share in NFC, amending article 243, return of education and population planning to the federation”.Under article 160(3) of the constitution, “the share of the provinces in each award of NFC shall not be less than the share given to the provinces in the previous Award”.
At present, the provinces are entitled to more than 57.5pc share in the federal divisible pool in additional to special transfer under the 7th NFC in place since 2010 instead of previous share of 47pc. Powerful quarters had been advocating reversal of the “imbalance” to meet rising debt and security expenditures.
Similar views were expressed by Special Assistant to the Prime minister on political issues, Rana Sanaullah talking to GeoTV.
At the same time the provinces are accused of failing to take measures for their revenue generation as well not establishing local governments in their respective jurisdictions.
The centre has imposed petroleum development levy, in place of general sales tax which is divisible, on petroleum products to create additional fiscal space worth more than Rs1.4trilion for current year besides excluding development projects in provinces from the federal development programme.
Many responsibilities in the federal domain including population, health, education and other social sector were devolved to the provinces under 18th constitution amendment in 2010.The finance minister said the government achieved macroeconomic stability, as validated by external agencies through rating upgrades after a gap of three years and successful completion of the second International Monetary Fund (IMF) review and the subsequent staff-level agreement.
He said the time had now come to leverage this macroeconomic stability alongside geopolitical tailwinds into trade and investment flows for sustainable and inclusive growth.
He said criticial structural reforms in various sectors, including energy, SoEs, and privatisation were currently underway.He conceded that Pakistan’s trade deficit had increased by 9pc in the first quarter and exports increased by 8pc.
He said the export growth should be greater but it would be unfair to say exports have collapsed. “ Remittances are providing us with a cushion. We expect remittances to hit $41-42 billion by the end of this fiscal year,” he said, adding that ultimately the current account deficit at $0.5 billion was “very manageable”.
The finance minister had called the joint presser with a select economic team comprising power, privatisation and information technology cabinet members besides secretary finance, chairman FBR and rightsizing specialist Salman Soofi to project economic reforms that he said had set the country’s direction toward sustainable and inclusive growth.Federal Board of Revenue (FBR) Chairman Rashid Mehmood Langrial said the country’s tax-to-GDP ratio had increased by 1.49pc last year, which was a historic achievement.He said the total collection from retailers had increased from Rs82bn to Rs166bn.
He said their income tax collection had increased by 102pc in one year. This included 99pc increase in withholding tax, 202pc in tax-demanded, 80pc in tax-admitted and 103pc increase in advance tax.
The FBR chief said 0.71pc improvement in tax to GDP ratio was achieved through new taxes, increase in tax rates etc while 0.77pc gain was through better compliance.
This also included about 1.15pc of GDP worth of petroleum development levy which he said was also considered a tax revenue, although technically described as non-tax revenue Mr Langrial said, the government and tax machinery was working on the target of tax-to-GDP ratio to 18pc by 2028 from 10.33pc, which includes provincial revenue and PDL, which is a 5.79 percentage point increase from 2025.
Power Minister Awais Ahmad Khan Leghari said the government’s top priority was to reduce electricity rates within the “tightened hands” as energy cost at Rs9.97 per unit was internationally competitive but capacity payments due to devaluation of currency and high interest rate.
He said the government had cut average power rates by Rs10.5 per unit and by Rs16 per unit for the industrial sector. The minister said the government was aggressively rolling out automation in the power sector and the entire metering landscape would be overhauled to automatic metering and pre-paid billing.
On privatisation reforms, Advisor to PM on Privatisation Muhammad Ali said the government remains committed “at the highest level” on this front and capacity building was taking place in the privatisation commission.
He said the three phase privatisation of 24 units had now been changed and the privatization commission was now working on taking as many transactions as possible.
He said the first transaction after 20 years through sale of state-owned First Women Bank Limited (FWBL) to a Abu Dhabi-based International Holding Company (IHC) was done at Rs5bn at a 60pc premium against a Rs3bn equity.More than the proceeds, through FWBL privatisation, IHC, a major entity in the UAE, will be entering Pakistan, he said.
He said after initial failure, PIA structure had been changed leading to major groups participating in its privatisation process. “The PIA privatisation is in its final stages, with the bidding process expected to be completed by the end of 2025”, he said, adding “We want to see a turnaround of PIA for improved service because through privatisation, we want to create a market-based economy in Pakistan”.
