The Upcoming NFC Meeting | Editorial

The federal government is intending to hold negotiations with the provinces soon for chalking out a new mechanism for division of the divisible tax pool under the new National Finance Commission (NFC). However, the award of 9th NFC can only materialise if the federation and the federating units reach a consensus on the respective shares of each other in the talks that are due next month.

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It has come to the fore that the federal government wants the provinces to give up a certain percentage of their share in the divisible tax pool. The federal government’s reasoning in this regard is that it cannot afford meeting the development and security expenses of some of the backward areas that previously were under federal administration or are still under centre’s authority. The demand for giving up a chunk of provincial shares will be the real irritant among the negotiators of the 9th NFC Award.

Meanwhile, the Sindh government has already completed its homework. Sindh government, even before meeting, is adamant not to accede to the idea of the creation of a ‘special pool.’ It is highly probable that Punjab and Balochistan will also oppose the special pool that will be created to meet out the expenses on social sector and security in regions like former Federally Administered Tribal Areas (FATA), Gilgit Baltistan (GB). Probably, the provinces will point out the fact that KP will gain further share in the NFC award on account of increase in its population as 82 per cent of the divisible pool is distributed on the basis of population.

Furthermore, the Sindh government will also try to convince the federation and other units to increase the ratio of weight from population to performance and revenue generation. The suggestion is not without merit. The idea, if accepted, will help in broadening tax net, which Pakistan direly needs. However, the proposal that Capital Gains Tax on immovable property that the federal government collects be devolved to the provinces will be a point that the centre may use as a bargaining chip to force the provinces to accept the creation of ‘special pool.’ Also, the point that the federal government should consult the federating units while granting concessions or reducing taxes is not an unjust demand at all.

What proposals do the other provinces have regarding redistribution mechanism under the 9th NFC award? We do not know. Given the fact that the NFC meeting will take place on February 6th the rest of the provinces need to hold preparatory meetings as soon as possible. It is essential for other provinces to join in the debate as it may help understand each other’s concerns better.


January 30, 2019

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