7th NFC Award- a step towards fiscal federalism in Pakistan
By Qudrat Ullah • Dec 14th, 2009 • Category: Politics • 5 CommentsAmid the daily reports of truculent Taliban’s interminable terrorism, explosions and deaths, coupled with a gasping economy with little respite for the indigent hoi polloi of the society, the unanimous approval of 7th National Finance Commission Award in Lahore the other day with Chief Minister Punjab Muhammad Shahbaz Sharif as the benign host, by all the four provinces and federal government, is indeed a big step forward, showing solicitous maturity and political wisdom of the leadership. The issue of NFC Award, which was lingering on for the last 19 years, has now been resolved with unanimity and accommodating approach of the provinces. All the more, four chief ministers and federal representative- minister for finance Shaukat Tarin, have shown much needed understanding and accrued statesmanship to arrive at an acceptable resource sharing formula between federating units and the federal government & amongst the four provinces. On the occasion, Punjab Chief Minister Shahbaz Sharif has termed the award as the second gift of democracy to the nation after restoration of democracy.
Country’s media and financial experts have welcomed the unanimous approval of the NFC Award and hoped that it would pave the way for composite growth and strengthening of democracy. According to the media reports highlighting various features of the new NFC Award, federal government has agreed to increase share of provinces up to 57.5% as compared to 47.5% which was given to them from the federal divisible pool before this Award.
In the new criteria, population, revenue, backwardness and “inverse density population” (the less the population, the greater the allocation) have been finalized for the Award. The Population would be given 82% weight, Poverty 10.3%, Revenue Collection 5% (2.5% revenue generation, 2.5% revenue collection) and Area 2.7%. Thus the Award would enable Punjab to secure 51.74% of resources, Sindh 24.55%, NWFP 14.62% and Balochistan 9.09%.The new Award has also removed disparities regarding revenue collection and generation from Sindh and Punjab, hydel royalties from NWFP and gas development surcharge (GDS) from Baluchistan. What is good that NWFP province has been given 1% of divisible pool for recognizing its role as a front line province in war against terror.
The state of Islamic Republic of Pakistan is a parliamentary federation comprising of four provinces, recently created Gilgit- Baltistan, federally administered areas, and the Islamabad Capital Territory. Being a central type of government, most of the revenues are collected by the Centre and then these revenues are re-distributed vertically between federal and provincial governments, and horizontally amongst the provinces. Through the Article 160 of the Constitution of Islamic Republic of Pakistan, 1973 it has been made mandatory for the government to compose NFC Award at an interval extending not more than 5 years for the amicable resource distribution among the federation and its respective units. Provinces then also re-distribute revenues among lower tiers of the government, through a revenue-sharing formula. And this way, the state functions.
Historically speaking, fiscal federalism has remained a rough road to ride in Pakistan. Out of a total of seven Commissions constituted after the 1973 Constitution, only four have come up with additional parameters to distribute the resources among the federating units. The resource transfer paradigm has always been a major bone of contention among the federation and the federating units as financial resources are a key for development. Its judicial and equitable distribution is necessary to build up any under developed or under privileged area and to win confidence of federating units. And, this is what 7th NFC Award has achieved.
The National Finance Commission Award has undergone different make over growing to its current form. Prior to independence, the pioneering Niemeyer Award under the Government of India Act, 1935 was followed to settle on the distribution of resources between federal and provincial governments in the British India. After the independence in 1947, Sir Jeremy Raisman was assigned by the newly created independent state of Pakistan to help formulate a feasible revenue sharing formula between federation and the federating units divided by one thousand miles. This Raisman formula was presented in December, 1947 and subsequently adopted on April 1, 1952.
It may be added here that taxes included in the federal divisible pool are income tax, general sales tax, wealth tax, capital gains tax, and custom duties.
In the first Award presented by ZA Bhutto government in 1974, fewer taxes were included in the divisible pool which consisted of income tax, sales tax and export duty while the criterion used for resource redistribution was recommended to be population. Resources were vertically distributed among federal and provincial governments at a fixed ratio of 20:80. As population being the sole criterion for distribution, Punjab’s share increased from 56.50 percent (1970 Award) to 60.25 percent while the three other provinces suffered, with Sindh suffering the most.
Afterwards, credit goes to the Pakistan Muslim League leadership for the fourth NFC Award in 1990, after almost 16 years of break in declaring a consensus NFC Award; the 1990 NFC award came up with some positive recommendations in April 1991 under the then government of Prime Minister Nawaz Sharif. The 1990 Award significantly increased the volume of provincial shares in the revenue collected by federal government by around 18 percent as compared to 1974 Award. This Award was a significant move forward towards fiscal decentralization by extending more financial autonomy to the provinces. In addition to this, for the first time the provinces’ right on net hydel profit, development surcharge on gas and excise duty on crude oil was admitted and amounts were relocated in the shape of straight transfers to the provinces.
Since then, no other government could bring out harmony on national financial matters and the eight years despotism further ruined the future of the country which antagonized the centrifugal forces in Balochistan and the cold blooded murder of Nawab Akbar Bugti added fuel to it.
The democracy which dawned on February 18, 2008 has bore many fruits; it has restored independent judiciary, helped to strengthen federation and a new journey of hope has begun. Acceptance of NFC Award has been hailed by the whole country. National leadership including President Zardari and P.M Yousaf Raza Gillani, besides various political leaders and finance experts have widely hailed consensus over 7th NFC award as a remarkable achievement of the government.
What is more commendable that Punjab province has shown much needed flexibility in approving the Award as its approval was not possible without such a positive approach of Shahbaz Sharif. Punjab leadership have shown flexibility and benign attitude towards other provinces and this gesture of sacrifice will help to strengthen federation and realizing the people of other provinces that Punjab is a caring partner in their development.
Indeed, democracy is the best hope for the people in our country.
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NFC award is great achievement indeed. Govt should be appreciated for this venture
Every body is praising shabaz sharif whom effort made this bill pass successfuly.
Hon they man jow shabaz is still the best among the four CMs.
Government of Punjab has chronically failed in protecting the rights of people of Punjab. Which is evident from the fact that it has not made any efforts for the construction of Kalabagh Dam while Govt of Sind is very proactive even in wasting the water of river Indus in Arabian sea.If Punjab govt can not protect the rights of people living alongside river Indus,it will BE better to separate out those areas from Punjab,so that those people can protect their rights themselves. From NFC award it is evident that Punjab Govt has sacrificed the rights of people just for pleasing those who always hate punjab. Moreover Punjab Govt has not raised any concern about the suffering of people of Punjab in Baluchistan,Karachi and Sind. Thar coal project will have adverse effects on each and every living organism,atmosphere,enviroment in Punjab but Punjab Govt foolish leaders has not shown any concern about that project.
This is not right if there is discrimination between proviences.So NFC is a great acheivement indeed but as my brother M.Akram Khan Niazi mentioned above in comments is so sad to read.The CM of Sindh claims having championed the mechanics of disbursing national resources according to a formula that encompasses two material and two moral compulsions. Among the material benchmarks are: Population and Revenue Generation capacity. The two moral compulsions center on poverty and backwardness of the province. Economic theories are yet to assume the enviable exactness of physical sciences. Every bureaucracy have relied on the mix of factors on circumspect combinations and permutations. There is a general consensus of opinion that the criteria that determines per capita income must also form the basis for equitable distribution of national finances. The concept of population would pose exponential problems for Balochistan with its sparse and thinly spread population, despite the largest of area in its control. Beset with dearth of demographics, Balochistan was recurrently meted out shares that continue to suppress its development and growth. Being the least developed part of the country, it is imperative that exceptions to the rules are made to ensure that all provinces have comparable footings to compete for NFC awards on merit. Punjab’s claim can never be scuttled on the flimsy grounds that it is exploiting its dense population. Since the inception of Pakistan, Punjab was blessed with sturdy agricultural base and significant institutes of learning that gave it an edge over all other federating units. Karachi assumed gigantic base for business and industry with the influx of immigrants from across the border. The Port City with its Bourse and big businesses supported by trading outlets shot it into a prominence for huge revenue generation capacity. Karachi today is a truly cosmopolitan city with the trappings of providing sustenance and economic security to the willing workers - energetic, enthusiasts and eager to make their mark - notwithstanding the mental agony and raging revulsion against the strong Mafia that commits open day robberies, loot and plunder under protective arms of the LEA. But recent occurrences presage societal resolve to stop the loot and plunder through stabilizing factors of matching Mafia’s strong arm tactics with unremitting force to defy and defeat the schemes of those callous criminals with the backing of shady and sneaky people in high places. Momentary public justice in the form of brutal beating - even lynching - to criminals caught in the act, is an instance to quote public alacrity to avenge itself of banditry of the Mafia.
If we believe all Pakistanies and provinces are equal. Then there has to be a multilevel formula to distribute the public money to the provinces. I do not believe it should be distributed only on the basis of population and geneneration of wealth.
All credit goes to the PPP Government….. This has become possible due to the freatest leader ship of Prime minister Gillani and President Asif Ali Zardari