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NFC: one step back

HAVING failed to mobilise new revenue lines or broaden the base of taxation, the federal government is now reduced to knocking on doors it has no business to be knocking on. The finance minister is now telling his provincial counterparts that the size of the federal divisible pool will need to be reduced by as much as 8pc in order to meet other expenses such as CPEC security and development spending in sub-federating regions like Azad Kashmir, Gilgit-Baltistan and Fata. The provinces are correct to resist this move, although it is regrettable that some options exist through which the federal government can unilaterally undertake this step, such as by re-designating certain taxes as non-tax revenue lines, thereby removing them from the federal divisible pool. Given the strength of the imperative that the finance minister has put behind this demand, it seems likely that he will resort to such unilateral moves, especially given that he may not be able to obtain the consent of two crucial provinces: Sindh and KP. This will be a regressive step and will open the door to rolling back the NFC award of 2009, and must be resisted.

To support its move, the federal government is claiming that provincial governments have failed to utilise the resources given to them under the last NFC award to improve social service delivery despite the passage of seven years. The argument by itself is fine, but it cannot be used to disentitle the provinces of their share under the NFC award. That entitlement exists independent of how the funds are utilised, and if there is concern at how the provinces are spending their incremental resources, then there is a case for strengthening centre-province coordination on service delivery and social protection, and not for rolling back the award. It is important to bear in mind that the last NFC award was not simply about resources. It was about correcting a long-standing defect in the federation that had left the provinces weak and starved in the effort to meet the revenue requirements of the centre. The finance minister should understand that his need of the day for revenue is less important than the structure of the state, and he should seek to meet his requirements through a more vigorous revenue effort rather than squeezing those already within the tax net, or disentitling the provinces of what has always been their rightful due.

Published in Dawn, December 27th, 2016

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