'Account No-1': Government likely to disallow 4 entities from direct operation

The government is likely to disallow four entities - Pakistan Post Office Department (pension payment and others); Federal Board of Revenue (tax refunds); State Bank of Pakistan (interest and principal payment) and Central Directorate of National Savings (interest and principal payment) from direct operation of 'Account No-1' (government account) as Finance Ministry construe it as illegal, sources to Finance Advisor told Business Recorder.

The Article 79 of the Constitution of Pakistan provides that custody of the Federal Consolidated Fund and the Public Accounts of the Federation and all matters connected with or ancillary thereto shall be regulated by an Act of Majlis-e-Shoora (Parliament) or until provision in that behalf is so made, by Rules made by the President. For this purpose, Public Finance Management (PFM) Act, 2019 has been promulgated in 2019 under the Authority of the Constitution. Under section 45 of the Act, the provisions of the Act have the overriding effect on all the existing Rules, Regulations, Codes, Manuals and other instructions.

Section 222 of the Public Finance Management (PFM) Act, 2019 provides that the custody of the Federal Consolidated Fund and Public Account of the Federation and operation of these funds shall vest in the Finance Division under the overall supervision of the federal government.

Further, under section 23 of the PFM Act, 2019, no authority shall incur or commit any expenditure or enter into any liability involving expenditure from the Federal Consolidated Fund and Public Account of the Federation until it has been sanctioned by competent authority duly empowered and the expenditure has been provided or supplementary grant and technical supplementary grant per article 84 of the Constitution or through re-appropriation per section 10 of the PFM Act, 2019.

The sources said the custody and operation of the Federal Consolidated Fund and the Public Account of the Federation vest in the Finance Division. However, the following Federal Government entities are directly operating the Account No-1 (consisting of Federal Consolidated Fund and the Public Account) of the Federal Government maintained with the State Bank of Pakistan; (i) Pakistan Post Office Department (pension payment and others); (ii) Federal Board of Revenue (tax refunds); (iii) State Bank of Pakistan (interest and principal payment) and; (iv) Central Directorate of National Savings (interest and principal payment).

Finance Division is of the view that the direct operation of Account No.1 in SBP by the above mentioned four entities is against the provisions of the Constitution and PFM Act, 2019. Finance Division has held various meetings with the stakeholders on this issue and ensured them full assistance for transformation of the existing system.

Finance Division has proposed that the Federal Government may approve; (i) to stop practice of direct operation of Account No.1 by Pakistan Post Office Department (pension payment and others), Federal Board of Revenue (tax refunds), State Bank of Pakistan (interest and principal payment) and Central Directorate of National Savings (interest and principal payment) from July 1, 2020; (ii) authorize Finance Division to formulate procedure along with timelines for development of a public accounting system for these entities and; (iii) opening of separate accounts by Pakistan Post Office Department (PPoD) and Central Directorate of National Savings with SBP as per section 31 of the PFM Act, 2019.