The National Finance Commission (NFC) is meeting today. Sources in the Q-Block say Mr. Asad Umar and his team were struggling for ideas as late as last weekend. What should be Islamabad’s position? That they know. What should be the arguments to win that position from the provinces? But they are not clear yet. Hence the last-minute scrambling for ideas. If media reports and a soon-to-be-published report by Prime, an Islamabad-based think tank, is any guide, this is somewhat how the initial conversation might look like.
Federal government (FG): We want you to allow 7 percent deduction prior to the division of the divisible pool, for our spending on security and federal territories.
Provincial governments (PG): (in unanimity) That’s not happening.
FG: Why not? Surely the whole of the country benefits from security spending and the federal territories. This allocation is not going to be just for Islamabad; you guys do understand that.
PGs: Granted! But these are all your responsibilities. Why should we pay for it? We have discussed this before in the Dar era, and it’s not happening. Let’s move on!
FG: But we are strapped for cash. The 18th amendment has left us in structural imbalance.
PGs: That’s your problem. Both of us know you don’t have enough numbers to amend the constitution, so why bother.
Besides, why didn’t you increase the tax to GDP as per the 2010 NFC agreement? You had the bulk of tax bases.
FG: The question is right back at you. Why didn’t you guys increase your own tax revenues; look at agricultural income tax and urban property tax.
Eight years on since devolution and you are still heavily dependant on our transfers.
PG: Well, if you must, we have performed much better than you in the case of GST on services.
And the revenue potential of agriculture income tax is immaterial anyway.
FG: Ah! But you see you have to understand that people are able to hide their non-farming income as agriculture income and get away with it, because you guys have not tapped agriculture income tax (AIT).
PG: How much income is being hidden as agricultural income? Do you have a number? Show us a study. In fact, why don’t we reassign taxes? You take the AIT and give us the GST on goods.
FG: Ummm…. (Confused at the question of tax reassignment) …farming income hides too much.
We just know it’s too much, and we will get back to you later with our ‘empirical’ estimates on AIT and urban property taxes.
But let’s move on for the moment and talk about the fact that provinces have not achieved the desired socio-economic objectives despite being awash with funds.
PGs: Hmmm, that’s our problem. Tomorrow, if we spend on education, you will say spend on health, and if we spend on health, you will say spend on labour.
How we spend our money is not your problem; so please leave it to the will of the people who have voted for us.
FG: How about we offer you some matching grant for socio-economic outcomes that you achieve?
PGs: A moment ago you said you were strapped for cash since the 18th amendment, and now you want to incentivise us. That’s funny!
FG: Well, at least you should share the burden of some expenses such as higher education, and the BISP.
PGs: On what account should we share that burden? Both of us know that, politically, you can ill-afford to cull this spending if we don’t share that burden.
FG: Oh, well, let’s move to next point.
Ring! Times up! Let’s lock our calendars for next meeting.
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