Sindh – NFC and Resource distribution

Resource distribution

By: ZULFIQAR HALEPOTO, Hyderabad, Sindh

Courtesy: daily Dawn, Saturday, 22 Aug, 2009

THE newly reconstituted National Finance Commission has been empowered to make recommendations on matters of sales tax on services (CE mode), examine the question of rationalisation of payment of royalties on crude oil and of surcharge on natural gas collected by the federal government and to develop a mechanism that can enforce fiscal discipline at federal and provincial levels.

Pakistan is a federation in which distribution of finances between the federation and the four federating units is a constitutional obligation of the NFC.

The NFC is supposed to distribute the finances equitably so that underdeveloped areas and less privileged people are given preference and the country progresses and prospers uniformly. In practice, this has not been happening.

The present elected and democratic government has promised that all provinces will be given their due and equitable share of finances and resources in the coming NFC Award. Therefore, any equitable distribution of resources is also seen to be a big challenge for the PPP government.

Sindh, which is rich in natural and human resources, has progressively become poor and destitute because of constant outflow of capital, transfer of finances and resources to other provinces.

The government of Sindh must have chalked out a comprehensive plan for getting maximum share for the province in the upcoming NFC award.

But civil society groups, nationalists and other stakeholders should plead a strong case before the federal government by designing specific goals in order to get its due and equitable share in the award.

Resources of Sindh and Balochistan were being transferred to the two other provinces since the inception of Pakistan. But during the last many years, there had been a marked increase in the transfer of resources from the two rich provinces.

The civil bureaucracy sitting in Islamabad has been depriving the two provinces of its resources. The federal government’s money comes from income tax, general sales tax, central excise duty and customs duty, which forms the divisible pool. According to the NFC formula, these resources are distributed on a population basis alone.

According to the Constitution, the GST collected on services, such as telephone and electricity, is purely a provincial subject. The bureaucrats sitting in the Q block of the Pakistan secretariat in Islamabad has been collecting this tax forcibly, illegally and unconstitutionally as a federal tax.

Sindh collects 46 per cent of GST on services which amounts to Rs40bn a year since year 2000. The federal government has collected Rs360bn from Sindh.

With Rs360bn, the entire irrigation network of three barrages of Sindh could have been remodelled, modernised and upgraded. The same goes for the octroi duty. It is unjust that Sindh’s money is being spent in other provinces.

The Nawaz Sharif government through an ordinance in 1997 had abolished octroi duty throughout Pakistan and raised the GST from 12.5 per cent to 15 per cent. An understanding was given that 2.5 per cent GST would be distributed among the provinces on a pro rata basis.

Sindh remains the main sufferer as 60 per cent of the total octroi tax is collected from this province. According to the population-based formula, Sindh is losing Rs5bn a year through this rip-off.

The defence budget of Pakistan is Rs335bn a year while another Rs40bn is paid as pension to the defence personnel. Sindh and Balochistan have hardly any representation in the defence forces, especially in the Air Force and the Navy.

In the new NFC award, it should be recommended that the defence budget should be collected from the provinces according to the defence personnel strength of each province. Inductions into the armed forces, especially into the Navy, should be made commensurate with the population of each province.

The Constitution must be implemented in letter and in spirit as far as the levy of GST on services and octroi duty were concerned and Rs5bn GST a year should be paid to Sindh through the new NFC award and Rs360bn of the last nine years should also be reimbursed to Sindh.


Secretary, Sindh Democratic Forum


Source –

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