Provincial governments had agreed to raise budget surpluses

Finance Ministry claims that provincial finance secretaries have agreed in writing to increase provincial budget surpluses consistent with the $6.64 billion International Monetary Fund (IMF) Extended Fund Facility (EFF) for achieving fiscal deficit targets in fiscal year 2015-16 and beyond. The Memorandum of Economic and Financial Policies (MEFEP) submitted to the IMF by Pakistani authorities stated that to this end, total provincial spending will be maintained at 6.5 percent of GDP in current fiscal year with total provincial own tax and non tax revenues standing at 1.1 percent of GDP.
The MEFP further stated that "we are intensifying interaction with provincial authorities at a higher level to arrive at a mechanism to strengthen the provinces'''' fiscal commitment for fiscal year 2015-16." Quarterly meetings among the federal and provincial finance secretaries are being held to review fiscal performance and co-ordinate spending priorities to correct any slippages in a timely manner, it added.
"We will again prepare contingency measures as needed and reduce expenditure allocations in the first nine months of the year compared to the budget to create a fiscal buffer against any deviation from the program target," stated the MEFP submitted to the Fund.
With recent constitutional amendments, Pakistan has a highly decentralised system of government. The seventh NFC award granted 57.5 percent of most revenues to the provinces, along with devolution of spending responsibilities and administration of the GST on services in addition to the existing taxation authority in agriculture and property. The MEFP stated in the new round of NFC negotiations, federal government will seek an agreement to balance devolution of revenue and expenditure responsibilities in a way that allows for macroeconomic stability.
"We will encourage provinces to improve provincial revenue collection by modernising agriculture taxation and improving taxpayer compliance with a particular focus on identifying mis-declarations in this area. In January 2016, we will start working closely with provincial governments to establish a centralised electronic fiscal cadastre to better record transactions and assess real estate tax for each property based on periodically updated market valuation" the IMF was informed.
The improvement in taxation and collection at the provincial level was critical after the 7th FNC Award which shifted tilt of revenue to the provinces. Although some expenditure responsibilities were also devolved, the existing fiscal federalism system remains unbalanced and tax revenue collection under provincial authority-GST on services as well as agriculture and property taxes - is very low.
Going forward, it will be important for the government to seek a better balance in the demarcation of revenue and expenditure responsibilities and encourage improvement in provincial revenue collection. The Staff also urged the authorities to reduce fragmentation in tax administration and improve cooperation with provincial tax authorities.