NFC Award

The National Finance Commission (NFC) Awards have a chequered history. Of the nine NFCs since 1973, only four were able to deliver Awards. Five, including the current ninth one, failed to do so because of a lack of consensus amongst the federal and provincial governments. Since the ninth NFC's term expired over the weekend, now a fresh, 10th NFC has to be constituted. The Ministry of Finance has reportedly moved a summary to President Arif Alvi for this purpose. What holds the field at the moment is the 7th NFC Award dating back to 2010, that expired in 2015 but has been extended every year since, because of the lack of consensus amongst the stakeholders. Under this 7th NFC Award, the Centre receives 42.5 percent of the divisible pool, while the remaining 57.5 percent is distributed amongst the provinces on the formula of shares being determined as follows: 82 percent on the basis of population, 10.3 percent on the basis of poverty and backwardness, five percent on revenue collection and 2.7 percent on inverse population density. The 7th NFC Award had led to a 10 percent increase in the shares of the provinces in federal taxes. With the 18th Amendment having abolished the Concurrent List and devolved many subjects to the provinces, the expectation was that the federal government would cut its cloth accordingly by increasing the tax-to-GDP ratio and abolishing a number of federal ministries that were now provincial subjects, such as education and healthcare. However, successive federal governments since, including the present incumbents, have failed on both counts. The tax-to-GDP ratio remains stubbornly at the decade-old figure of 9.3 percent because of the failure of the Federal Board of Revenue (FBR) to enhance tax collection, while the defunct federal ministries remain in existence and contribute to a large federal cabinet (50 members after the latest cabinet reshuffle in the Information Ministry) with its attendant high cost. Instead, the present federal government of the Pakistan Tehreek-i-Insaaf led by Prime Minister Imran Khan has been applying increasing pressure on the provinces to either give up part of their divisible pool shares or take on additional expenditure responsibilities. But this is unlikely to pass muster with the provinces. If so, the impasse seems set to continue.

The federal government has also floated the idea of revisiting, with the provinces on board, the 18th Amendment. This too has not found favour with the opposition, particularly the Pakistan People's Party (PPP), whose 'baby' the 18th Amendment is. To further muddy the waters, the provincial finance commissions to be formed to frame an intra-provincial finances distribution formula for the districts have yet to see the light of day. In their absence, and with the local bodies dysfunctional, this distribution of finances down to the district level remains unfulfilled. The 2010 7th NFC Award achieved consensus by taking all governments, federal and provincial, on board. But the current federal government of the PTI has shown little or no inclination to reach out to the provincial governments, particularly the PPP government in Sindh, on this or for that matter any other issue. The PTI's mantra of labelling the opposition leadership 'crooks' and 'looters' continues, albeit not so stridently as before owing to the pandemic crisis. However, the atmosphere having been sullied before and after coming to power of the PTI in 2018, the federal government would have to do an extraordinary amount of fence-mending and soothing ruffled feathers before the opposition may even be willing to listen to the Centre's concerns regarding the NFC Award and the 18th Amendment. The flaw in the PTI's approach has been not to recognize that what served it well while in opposition may not be the right note to sound after it is in office. Without a minimum of courtesy and respect for the opposition, both the NFC Award and any discussion on the 18th Amendment seem destined to remain in limbo.