The Sindh government has engaged former Attorney General of Pakistan, Makhdoom Ali Khan, to advise on fudging in the 7th NFC Award, signed in Gwadar. He has advised that the draft bills 2010 relating to Federal and Provincial VAT, prepared by the Federal Board of Revenue (FBR), reflects a gross violation of the recommendations of the 7th NFC Award relating to sales tax on services.
These bills empower FBR to collect VAT on behalf of both the Federation and the provinces, without providing any scope for provincial rights on collection of sales tax on services. There are innumerable clauses which, in a way, encroach upon the provincial jurisdiction, so much so that the role of the provincial government has been almost limited to the promulgation of the Act only, as was the case in the existing Provincial Sales Tax Ordinance 2000.
This would almost ruin the achievement of the 7th NFC and would create massive criticism against the government for impinging upon provincial autonomy. The political and bureaucratic hierarchy of the province is deeply concerned over what is describes the "sheepish" omissions commissioned in the presidential order relating to the NFC and the indifferent silence of the federal government over its protest to undo the wrong and demand for correcting and amending the order pertaining to distribution of revenues and grants in aid vide order No 4 of 2010 issued by the President.
The order has not mentioned GST on services as a provincial subject and exclusion of another important issue agreed upon with reference to inclusion of multiple indicators in the criterion for horizontal distribution amongst the provinces. The multiple indicators and their respective weights were also agreed upon in the NFC award. This agreement on multiple indicators was always debated in the past during all the NFC awards and during all the interim arrangements of distribution of revenue collected by federal government.
The biggest province, Punjab, with the biggest share in the bureaucracy and in the parliament, or wherever it would enjoy the population related representation and presentation, always opposed any deviation from the population-based distribution of revenue or grant in aid, due to which provinces always had complained against the biggest federating unit due to its major representation in civil and military bureaucracy. The National Finance Commission Award 2009 was signed in Gwadar by all finance ministers in conformance of agreement by all the provinces through the respective governments run by Chief Ministers.
In addition, the document was also signed by the then Chairman, Shaukat Fayaz Ahmed Tarin, Federal Finance Minister and Chairman of NFC, giving it effect for future implementation and distribution of revenue as per the clauses agreed under NFC. The NFC award document was signed on December 30, 2009 in Gwadar and its clause 5 read: It was agreed with consensus for the first time to include multiple indicators in the criterion for horizontal distribution amongst the provinces.
The multiple indicators and respective weights as agreed upon are:
i, Population 82 percent
ii, Poverty backwardness 10.3 percent
iii, Revenue collection/generation 5.0 percent
iv, Inverse population density 2.7 percent
The NFC commission award further in its clause 12 reads as: NFC recognises that sales tax on services is a provincial subject under constitution of Pakistan, and may be collected by respective provinces if they so desire, The order promulgated by the President was dated 18th March 2010.
President's order Number 4 of 2010 to provide for distribution of revenues and certain grants was issued after 18 days from signing of the NFC Award 2009. Reportedly, Sindh was suspicious, as insiders say that they were denied access to the translation and conversion of the NFC award into summary for issuance of the presidential order.
The insiders further say that till the last moment they had no access to the final draft summary which was being sent to the presidency for promulgation of presidential order on N FC award. They further confirmed that it was a secret game, and Sindh was informed only after the issuance of President's order No 4 of 2010.
Insiders further confirmed that Sindh Government was seized of the difference in the NEC award 2009 and presidential order number 4 of 2010 only when it was notified in the Gazette. The order excluded the most necessary fundamentals on which agreements were made after long chase by provinces in which Punjab eventually agreed to shift from its past stance of nothing but population as the only criterion for the distribution of resources.
The tax on the services deemed provincial tax already covered by the constitutional framework was forcefully pleaded by the member of NEC from Sindh Dr Kaiser Bengali and agreed to before giving the final tuning of the language for signature in Gwadar. The developmental economist thought that with 3000 service providers, registered with FBR, it could very easily be managed and expanded by the newly created service, namely Sindh Revenue Service Authority.
Sindh, since the signing of award, had started consultations and outsourcing for required projections for creating Sindh Revenue Services Authority to collect the taxes on services by the province. Reportedly, much progress has also been made in this regard as outsourcing has been done for projection of HR, IT, tax collection systems and all other allied legal and IT support systems necessary for running a tax revenue authority.
The Government of Sindh, through its Finance Secretary, who had walked out under protest in the meeting on VAT bill issues in Islamabad earlier, had written a letter to the Federal Secretary Finance, with copies to Senator Raza Rabanni, Chairman of Federal Committee on Constitutional amendments, Principal Secretary to the Prime Minister, Chairman of FBR, CS of Sindh and Sindh Chief Minister.
The letter invited attention of the federal government that the provincial and federal VAT bills 2010 received reflect a gross violation of constitution of Pakistan. These are totally contrary to the recommendation of NFC relating to Sales Tax on services. In addition, the provincial government through secretary finance also described in a nutshell that the federation by giving itself the powers in the proposed VAT bills 2010 has clearly tried to bypass the constitution and has almost negated the agreements during the NFC awards.
The walkout by the secretary finance from the meeting in protest preceded by writing letter to federal finance secretary that government of Sindh would officially like to place its serious reservation on record and submitting that draft bills on VAT both, federal and provincial being contrary to the constitution are not acceptable to Sindh, These impinge on provincial autonomy and are also contrary to NFC award.
The Sindh government in its detailed letters has also been inviting attention of federal finance ministry that several additional tampering have been made in clause 3 of the presidential order which contain major deviations from nomenclature of taxes as given in the constitution of Pakistan.
The provincial government pointed out that as per president's order and as per constitution the deviation has been wilfully commissioned in the order. The complaint by Sindh government further said that as such the NFC commission order has been totally messed up. Sindh government strongly sought urgent amendment by incorporating the signed recommendations of the 7th NEC award including correcting the deviations from the constitution in the order issued by the president.
The Sindh government, pleading on the political side, reportedly has also told President and Prime minister that in case the order is not amended it will be a great betrayal and a fraud for Sindh. The voters may not reconcile with this development which will cast adverse impact on the political future of the party in Sindh as it would be overplayed by the opponents. The situation by many analysts and party workers has also been attributed to either mischief or misplay by bureaucracy.
The nationalists of Sindh are very guarded in their approach over the issue and appear to prefer a situation to develop when Sindh government fails to manage the required correction. The nationalists then would be in a better position to comfortably inform the people that betrayal, denial and everything unfair is the fait accompli of the people of Sindh unless they change their present position from being pro People's Party to pragmatism from emotionalism.
The nationalists, like Rasool Buksh Palejo, the great marcher against Kalabagh Dam, seems to be not much in the press against the fraud which federal bureaucracy has done with the province by tampering, manipulating and trimming of the document signed by all the provinces.
Sindh's Law Minister Ayaz Soomro, replying to questions by newsmen the other day on the issue, said: "We are not asking for the amendments as charity but it is our right. It can not be called a computer error or a typing mistake because languages have been deleted in the presidential order. These appear to be wilful mistakes incorporated by making deviation from the constitutional non-variables and their incorporations related to the taxes and their definitions."
He said: "We have tabled the bills and we will pass the bill which province of Sindh has made with the assistance of tax lawyer appointed by Government of Sindh for the purpose of levying tax on services as per constitutional permission further expressed and agreed in the NFC. We will not betray the province as we have been given mandate to safeguard the interests and any silence or connivance by us should not be expected".
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