Pakistan’s National Finance Commission (NFC) Awards – A tool to exploit Sindh

By Naseer Memon (English Translation by: Khalid Hashmani)

[Backdrop: As the Pakistani establishment including their new political party partners mull over the upcoming NFC award, the people of Sindh have dug their heals and want that the awards be fair and follow the best practices of other similar countries such as India. The grass-root political workers from all political parties in Sindh who have long criticized the inequalities of NFC award are joining hands to bring an end to the exploiting aspects of the award. In this backdrop, SaeeN Naseer Memon has once again written a timely and detailed analysis of the exploiting nature of current NFC awards. He urges the ruling party that as the inequities in the form of NFC started after 1973 constitution when PPP was in power; the time has come for PPP to play its role in correcting this historic form of exploitation and restore fairness to all provinces. It is hoped that the information in this article would enable those who are engaged in lobbying and advocacy activities on behalf of Sindh to get it in front of decision makers and influencers. ]

Basic inequities of Current NFC Awards

The critical inequities of the NFC award lie in three areas – first it is distributed solely on the basis of population, second it covers almost all of the revenue generation in Pakistan, and third it enables the federal government to keep a lion’s share for itself.

How Pakistan and other countries collect and distribute revenues to Provinces?

In 1974, 1979, and 1990 NFC awards, provinces received 80% of total revenue collected and 20% was kept by the federal government. However, starting 1996 during the rule of an interim government headed by PPP’s Miraj Malik and when the Chief Minister was Mumtaz Bhutto, the federal share was drastically increased to 62.5% leaving only 37.5% for the provinces.

At the present time the Federal government collects 91% of taxes levied in the country and the provincial governments collect between 6 to 7%. In comparison, provinces in Malaysia, Nigeria, Mexico, and Columbia collect about 10%, 10%, 12%, and 15% of revenues respectively. Thus, unlike other countries, the provinces in Pakistan made depended on the federal government on NFC handouts from the federal government Regardless of how much revenues they generate or how rich they are, the only major source of revenue for Pakistani provinces are the NFC awards to pay for health, education, social services and other needs. On the expense side, federal government pays for 71% of the provincial expenditures and remaining 29% must be borne by the provincial governments. However, some provinces can only afford to pay 16% of their expenditures compared to India. In India, collection of revenues is not monopolized by their federal government, and Indian provinces are capable of paying about 35% of their expenses.

In fiscal year 2009-10, the total revenues to be collected by Pakistan government are estimated at 1,352 billion rupees. However, 52% of this revenue will be kept by the federal government and only 48% (569 billion rupees will be allocated to the provincial divisible pool . From this divisible pool, 326 billion rupees are allocated to Punjab and Sindh would receive 135 billion rupees.

Pakistan is the only country in the world where the distribution of income/resources to provinces is done only on the basis of population. Other countries not only take population into account but also consider other criteria such as poverty, natural resources, revenue generating capability, and extent of development requirements to ensure an equitable and fair distribution. For example, in the neighboring India, the only 22.5% of distribution of income tax collected by the federal government is done population basis. Similarly, only 25% of Excise duties collected by the federal government are done on the basis of population. These shares have been adjusted during various times depending upon the changing conditions. Among other countries, Argentina, Nepal, Mexico distribute only 65%, 20%, and 50% respectively.

Why Pakistan uses only population as a basis for distributing revenues?

There is no justification to use the population as the sole criteria for distributing revenues to provinces in Pakistan. One apparent reason that all three small provinces vigorously talk about is that this criteria enables Punjab to get the maximum share of country’s resources. Using this criteria Punjab secures 56%, Sindh gets 23%, North-West Frontier Province (NWFP) gets 13.5%, and Balochistan receives about 5%.

Why there is resistance to implement recommendations to remove inequities in NFC awards?

A working group formed by the 6th Finance Award recommended in August 2002 to include tax recovery and generation, area, and economic conditions of provinces in addition to population for NFC awards. Sindh and Balochistan supported these changes but Punjab and NWFP rejected these recommendations. When in opposition, the Peoples Party of Pakistan (PPP) always supports recommendations. to remove NFC Award inequities. However, when the party is in power, it too has followed the same population-based criteria in NFC awards.

Why must Federal Government control income from natural resources and sales taxes?

The federal government has forced itself on becoming the sole collector of sales tax in Pakistan. Total estimated Sales Tax collection for fiscal year 2009-10 are expected to be about 500 billion rupees. Of this, Sindh is estimated to receive only 53 billion rupees via the divisible pool. It is estimated that Sindh contributes about 300 billion rupees in sales taxes (approximate 60% of all sales taxes collected in Pakistan). Just imagine how much poverty could Sindh eradicate from poor rural and urban areas if Sindh was to keep of the sales tax revenue collected from Sindh.

In most countries of the world the jurisdiction over collecting sales taxes is predominantly left to provinces. Unfortunately, for Sindhis and Baloch, this is a gift of highly centralized 1973 constitution that has now outlived its existence.

In Indo-Pakistan subcontinent, the collection of sales tax remained under the sole control of provinces. In 1947, federal government was allowed to collect 50% of sales taxes temporarily to help settle mass migration that occurred in the aftermath of 1947 partition of British India into India and Pakistan. Sindh contributes almost 60% of all sales taxes collected in Sindh but receives only a fraction from that amount. Sindh must take a non-negotiable stand on the reversion of power to collect sales taxes back to provinces.

Other ills of current Federal system in Pakistan

The federal system of Pakistan works in such a manner that Punjab also comes out beneficiary on many other accounts. For example in the current year’s budget, there is a massive allocation of 115 billion rupees to be spent on military personnel, 70% of whom come from Punjab. In addition to this, Punjab is also the primary beneficiary of jobs and other economic benefits a substantially high employment through the huge corporations such as Fauji Foundation, Army Welfare Trust, NLC, and FWO also come from Punjab. Similarly, Punjab also benefits from huge amount of development funds (28 billion rupees) that are allocated to Islamabad as the capital city of Pakistan. About 70% population of this city are Punjabi-speaking, 9.5% are Pushto-speaking, and Sindh- and Balochi-speaking population account for only 0.56% and 0.06% respectively.

The Sindhi-speaking and Balochi-speaking populations also have substantially lower number of employees in the Federal government and many semi-government agencies of Pakistan. The conditions of these minorities would have been some what improved if only their hiring in these organizations was in proportion to their population. The following numbers provide a shocking picture of disparity among the federal jobs:

Federal Archeology Department – Among the 96 officers only 10 are Sindhi-speaking (Daily Newspaper Kawish – January 2007).

Pakistan Television Corporation – According to Daily Kawish dated April 3, 2008, the number of Sindhi-speaking employees among various cadres are;

– Reporters: Two (2) out of 150

– Producers”: Ten (10) out of 270

– Production, Administration, and Finance departments: Not a single Sindhi-speaking manager.

Federal Government (According to Daily newspaper Kawish dated April 28, 2008)::

– Among 37 federal secretaries, only two (2) are Sindhi-speaking

– Among 25 Grade 21 senior officers, only two (2) are Sindhi-speaking

– Among 83 Grade 20 senior officers, only ten (10) are domiciled from Sindh and among these five (5) are Punjabi- and Urdu-speaking.

– Among 248 Grade 19 senior officers, only 11 have domicile from Sindh

— (Number of those domiciled in Punjab is more than 24% of their population proportion)

.According to Daily newspaper Kawish dated August 11, 2098, among 160 Medical officers working in the Federal Ministry of Health, 103 are from Punjab and only eleven (11) are from Sindh.

Conclusion

Looking at an overview level and doing a broad analysis of only high-ticket items, it would appear that Punjab, which has about 56% of Pakistan’s population is using 65% to 70% resources of Pakistan. It is imperative that NFC award mechanism and processes be changed so that provincial share in the NFC award (and corresponding expenditures) would be increased to 80% and the remaining 20% be allocated to the Federal government to cover the federal responsibilities. Any thing less that would mearly be cosmetic changes and fail to alleviate the problems of Pakistan. Another urgent issue that needs to be resolved is the rationalization royalties and surcharges related to oil and natural gas produced in Pakistan. THese items should be removed from the divisible pool and be transferred directly to the producing provinces. Article 16 (1) of Pakistan constitution clearly states that these royalties and surcharges are excluded from being a part of the divisible pool.

About Author: Mr. Naseer Memon is a development professional and a writer on environmental and development issues. He has been associated with Non-Governmental sector since last 16 years including UNICEF, UNDP, WWF Pakistan and LEAD Pakistan. He is a regular contributor to major Pakistani newspapers such as Daily Dawn and Daily Kawish. He has authored several books on the economy and poverty issues of Sindh. He is also Vice Chairperson of the Board of Director of leading civil society organization “Strengthening Participatory Organization (SPO) and the Member Board of Directors of Indus Resource Center.

About Translating Author: Mr. Khalid Hashmani is a Washington DC-based veteran human rights activist. He is the founding President of Sindhi Association of North America (SANA) and Chief coordinator of Sindhi Excellence Team (SET) that participates in advocacy activities on behalf of rural Sindhi.

Courtesy & Thanks : Sindhi daily Kawish-4th Sep 2009

9 thoughts on “Pakistan’s National Finance Commission (NFC) Awards – A tool to exploit Sindh”

  1. tamam sutho article ahe,,,
    sindh ji haqan san na insafi akhir kesetayin pe thindi,, sagi ppp b punjab je galh manji population criteria te revenue distribute kanda,, SAIN QAIM ALI SHAH KHE ANJA WADHIK HISO WATHAN KHAPE HA,,,

  2. in my comment of today on the subject of current nfc award in pakistan, please make one correction. in haste i wrote 4 times to mean dollars 16 against one whereas the actual figure would be dollars 4 against one in per capita terms. inconvenience caused to any body is sincerely regretted. dr m usman narejo, karach

  3. in this regard, australia is taken as an example of successful federation in terms of sharing resources between their states (provinces). australia used to face issues similar to pakistan. they have 7 provinces and one province (victoria) is very large in terms of the size, but very low in terms of population-like baluchistan in case of pakistan. the australin federal govt was faced with the challenge of how to provide basic services of similar quality to the people of all the provinces. they decided to increase the provision of financial resources to this province(victoria) to 4 times the per capita resourecs given to other provinces, which means victoria state got 16 dollars against each dollar given to other states in per capita terms!

    but that is australia! i do not see such kind of vision and resolve among political and bureaucractic circles of pakistan, without which the state of pakistan will continue to be mired in political instability and economic underdevelopment. it is not a rocket science to know that no nation can make progress without political stability, which only comes aftere just and fair distribution of resources between the federating units.

    we have tried 3 times in pakistan’s history to acheive economic developoment through short cut measres but without sucess. every time
    brief period of economic devlopment during military regimes have been followed by very weak economic growth. but we continue to deny a basic fact of economic history of the world. no nation has progressed economically without creating conditions of durable peace and political stablity in the country- and only afterwards economic development takes place.

    i am worried that it may be too late before we learn the lesson!

    dr usman narejo
    karachi, pakistan

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