Challenges: role of NEC & NDC — II

What happened after the maiden meeting of NDC is not made public nor has the progress of projects discussed in the very first meeting been monitored. It has no website and on the website of Prime Minister’s Office no material other than that of the first meeting is available. Why NDC was formed in the presence of National Economic Council (NEC), a constitutional body under Article 156.

It is not understandable why NDC has not been playing the role for which it was notified and why no meetings are being held to combat the emergent economic challenges highlighted above.

It is worth mentioning that planning, in the period following Constitution (Eighteenth Amendment) Act, 2010, received assent of President on April 20, 2010, should have been federalised rather than centralised. But even after lapse of 10 years and seven months, nobody has raised this issue, what to speak of implementing it in letter and spirit. The Constitution (Eighteenth Amendment) Act, 2010 [commonly called the 18th Amendment] has redefined NEC on the pattern of Council of Economic Interests (CCI). The NEC forms part of Chapter 3 of the Constitution entitled ‘Special Provisions’. In view of Article 167(4), the role of NEC has become very important though it has yet not been realised by the centre and provinces. Debts needed by provinces and their servicing plus repayment should be borne by provinces to relieve the Federal Government of the enormous amount that takes away more than 75% of tax revenues and 65% of total revenues (tax and non-tax). Article 167 after addition of clause (4) by the 18th Amendment reads as under:

Borrowing by Provincial Government.—(1) Subject to the provisions of this Article, the executive authority of a Province extends to borrowing upon the security of the Provincial Consolidated Fund within such limits, if any, as may from time to time be fixed by Act of the Provincial Assembly, and to the giving of guarantees within such limits, if any, as may be so fixed.

(2) The Federal Government may, subject to such conditions, if any, as it may think fit to impose, make loans to, or so long as any limits fixed under Article 166 are not exceeded give guarantees in respect of loans raised by, any Province, and any sums required for the purpose of making loans to a Province shall be charged upon the Federal Consolidated Fund.

(3) A Province may not, without the consent of the Federal Government, raise any loan if there is still outstanding any part of a loan made to the Province by the Federal Government, or in respect of which guarantee has been given by the Federal Government; and consent under this clause may be granted subject to such conditions, if any, as the Federal Government may think fit to impose.

(4) A Province may raise domestic or international loan, or give guarantees on the security of the Provincial Consolidated Fund within such limits and subject to such conditions as may be specified by the National Economic Council.

[bold and underlined by us for emphasis]

The 18th Amendment gives provinces equal rights over their natural resources. Article 172(3) confers 50 percent ownership of hydrocarbon petroleum resources to the provinces. The subject was earlier held by the federal government. There still exist legal and administrative bottlenecks for implementing this provision.

Presently, many economists and politicians are arguing that 7th NFC Award and 18th Amendment are harming fiscal stability of federation. Their argument needs consideration. The issue of NFC Award vis-à-vis provisions of 18th Amendment must be examined holistically. The performance of provinces in collecting tax from the rich and mighty e.g. agricultural income tax is extremely appalling. This is a common issue both at federal and provincial levels arising from absence of political will to collect income tax from the rich—the meagre collection of agricultural income tax—less than Rs. 3 billion by all provinces and Centre in fiscal year 2019-20—is lamentable.

It is imperative that right to collect tax on income, including agricultural income, should be given to the Centre through dialogue and in a democratic way under Article 144 of the Constitution which says:

“144. Power of Majlis-e-Shoora (Parliament) to legislate for one or more Provinces by consent.—(1) If one or more Provincial Assemblies pass resolutions to the effect that Majlis-e-Shoora (Parliament) may by law regulate any matter not enumerated in the Federal Legislative List in the Fourth Schedule, it shall be lawful for Majlis-e-Shoora (Parliament) to pass an Act for regulating that matter accordingly, but any act so passed may, as respects any Province to which it applies, be amended or repealed by Act of the Assembly of that Province”.

In the same manner, the Centre and provinces should levy harmonised sales tax on goods and services. The division should be strictly according to the formula agreed under Article 160 of the Constitution so collection will be efficient and citizens/taxpayers will have a single window facility. This will help the State collect taxes of nearly 12 trillion as per actual potential—details are available in ‘Towards Flat, Low-rate, Broad and Predictable Taxes’ (PRIME Institute, Islamabad, 2016, now its revised and enlarged version is published in December 2020 is available free at: https://primeinstitute.org/towards-flat-low-rate-broad-and-predictable-taxes/). This is the only way to meet the emergent economic challenges faced by the State and achieve fiscal stabilisation in Pakistan without disturbing the 18th Constitutional Amendment.

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS))

Copyright Business Recorder, 2021