Daily Times

According to a Press report, the International Monetary Fund (IMF) has asked the Finance Minister of Pakistan to reduce the share of provinces under the National Finance Commission (NFC) Award, as a condition for new bailout package. Reportedly, Mr. Asad Umar refused to commit anything which is not allowed by the Constitution of Pakistan.  In terms of Article 160 (3A), inserted by the 18th Constitutional Amendment in 2010, “the share of the Provinces, in each Award of National Finance Commission shall not be less than the share given to the Provinces in the previous Award”. It means that the share of provinces are 57.5 percent, under the seventh NFC Award which cannot be reduced.

The IMF even before giving us a fresh bailout was behaving like a Neo East India Company. But the fault lies with our parliamentarians and men in power. They have policies of appeasement towards tax evaders. They get tax amnesties and immunity for the tainted money under unjust laws like the Protection of Economic Reforms Act, 1992, which has still not been repealed even after empirical data proved that it helped in the flight of money from Pakistan, to almost $ 250 billion in the last 25 years.

We keep on cursing the IMF and others but never try to put our own house in order, beggars cannot be the choosers. IMF did not invite us for another bailout. During the Decade of Democracy (2008-18), both the Pakistan People Party (PPP) and Pakistan Muslim League-Nawaz (PML-N) helped the rich industrialists to avoid paying enhanced contributions to the Workers’ Welfare Fund by making amendments in the law through a Money Bill rather than taking the proposed legislation to both the Houses. Even after the verdict of the Supreme Court of Pakistan on this issue, no corrective measure has been taken. In 2013, Income Support Levy was imposed on net moveable assets which exceeded Rs. 10 million at the rate of just 0.5 percent but 99.9 percent of the parliamentarians, including the incumbent Prime Minister and his predecessor, did not pay it. The rulers do not pay due taxes and then begged an IMF bailout-obviously the conditions of IMF target the poor and not them.

The parliamentarians, instead of making Pakistan self-reliant, were keener to increase their salaries, perks and perquisites. Moreover, the minimum wages notified for  poor workers are a mockery of Article 3 of the Constitution. For such rulers and those who vote for them, subjugation at the hands of foreign investors/lenders is a fait accompli. The stalwarts of Pakistan Tehreek-i-Insaf (PTI) while sitting in Opposition are now in power; they did not prepare a plan on how to avoid this subjugation, though boisterous sloganeering to this effect was their hallmark.

Of late, some economists have argued that the 7th NFC Award is harming the fiscal stability of the federation. Their argument needs consideration. The issue of NFC Award vis-à-vis provisions of the 18th Constitutional Amendment relating to the decentralisation of fiscal powers cannot be examined in isolation. It is clear that the federal and provincial governments are not concerned with the fundamental issue of judicious and even handed distribution of taxation rights between the Centre and federating units, that can help the empowerment of masses and ensure prosperity for all.

In 2009, the representatives of the provinces and the federal government showed ‘satisfaction’, rather ‘jubilation’ over the 7th NFC Award. In fact, our ruling classes failed to comprehend the real issue faced by the federation. It was, and is, how to empower the provinces so that they are autonomous in fiscal and administrative matters. The issue is not of merely devising a fair formula for the distribution of the net proceeds of the taxes, but the revisiting of Articles 142 and 160 of the Constitution vis-à-vis bringing the less privileged and the underdeveloped areas at par with big sprawling cities; where the mass influx of people is playing havoc, resulting in the creation of ghettos..

According to a Press report, the International Monetary Fund (IMF) has asked the Finance Minister of Pakistan to reduce the share of provinces under the National Finance Commission (NFC) Award, as a condition for new bailout package. Reportedly, Mr. Asad Umar refused to commit anything which is not allowed by the Constitution of Pakistan

The Centre, at present, is transgressing on the constitutional right of provinces by levying income tax on gross value of many services and then out of the divisible pool giving funds that otherwise exclusively belong to them. Moreover, depriving the provinces of the right to levy sales tax on goods is the fundamental flaw of our Constitution. It was available to them before independence. The Constituent Assembly took away the right of levying sales tax on goods from provinces with the promise to give it back as soon as the financial position of the Centre improved-a promise that never unfulfilled and in the 1956 Constitution, “tax on sales and purchases” appeared at Serial No. 26 of the Federal Legislative List making it for the first time a federal subject.

The federal government, even after usurping the right of provinces of ‘tax on sales and purchases of goods’ has failed to tap the real revenue potential if about Rs. 8 trillion. The failure of FBR on this account adversely affects provinces as they are dependent on what the Centre collects and transfers to them from the divisible pool. Since the size of the cake is small, the provinces lack sufficient resources for the welfare of their people. In this scenario, the real victims are the masses.

The taxation rights under the prevalent constitutional scheme need reconsideration allowing provinces to raise adequate resources that will also help in overcoming overall fiscal deficit faced by the Centre. For example, Balochistan should get ‘net proceeds’ on natural gas and Khyber Pakhtunkhwa on electricity, as envisaged in Article 161(1) (a) and (b) of the Constitution. Their present share in sales tax from the divisible pool is as low as 9 percent and 14 percent respectively. They have rich natural resources and a wealth of oil, gas and electricity, but due to the low population rate, they get a small share for the goods they produce. The same is the case with Sindh. Punjab is the only beneficiary of the existing distribution of taxes under Article 160-it gets the lion’s share of 53 percent (for 2017-18 it was Rs. 1.2 trillion).

The performance of provinces in collecting agricultural income tax is extremely appalling. This is a common issue both at federal and provincial level arising from the absence of a political will to collect income tax from the rich-the meagre collection of agricultural income tax-less than Rs. 2 billion by all provinces and Centre in fiscal year 2017-18-is lamentable. It is imperative that the right to levy a tax on income, including agricultural income, should be given to the Centre. In return, the Centre should hand over sales tax on goods to the provinces. This will help FBR to collect income tax of Rs. 5 trillion. It will also reduce the fiscal deficit of the Centre. This is the only way to achieve a fiscal stabilisation in Pakistan without disturbing the 18th Constitutional Amendment.

The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS). Email:ikram@huzaimaikram.com; Twitter: @drikramulhaq

Published in Daily Times, October 14^th 2018.