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NFC Reconstitution | Editorial

THE move towards the reconstitution of the National Finance Commission is an important step forward, though the real test will be in getting the provinces to agree to a new revenue-sharing formula. The seventh NFC award from 2009 is the last consensual award, and stands out as a rare moment when the federal and provincial governments were able to agree on a new revenue-sharing formula. The commission set up under Pervez Musharraf failed to reach a consensus, as did the one installed during the rule of the PML-N. Successfully navigating the politics of the finance commission is a test of political maturity, and the ninth commission, for which the government has sent a reference to the president, comes at a time when political maturity is needed more than ever.

Beyond the politics, the economics of the National Finance Commission will also present a unique challenge. The revenue-sharing formula that has held the field since 2009 awards 57.5pc of the federal divisible pool to the provinces, and since 2011 Balochistan has received further assurance that its share will be disbursed on the basis of revenue projections, not actual collections. The spirit of the 2009 NFC award was a belated acknowledgement of the federal structure of the state, and the important role of the provinces in the overall governance framework. The latest commission that is about to be constituted must not roll back these gains made by the provinces, nor should it seek a disingenuous path to cut provincial shares through other means. The Constitution prohibits rolling back provincial shares in national resources, and its letter and spirit must be respected as the commission prepares to meet. It is true that the devolution of these resources to the provinces has sharply narrowed the fiscal space available to the centre, but it would be better to address that issue through tax reform and strong efforts at documentation of the economy. One matter that the commission can discuss is how to incentivise the provincial governments to strengthen their own revenue-collection efforts, and particularly to do more in generating agriculture income tax, which lies squarely in the provincial domain. At the moment, the provincial government revenues have grown on the back of low-hanging fruit such as taxes on services. The finance commission would have the opportunity to craft a consensus around revenue mobilisation and sharing, and the opportunity must not go to waste.

Published in Dawn, January 2nd, 2019

Source: https://www.dawn.com/news/1454962/nfc-reconstitution

January 2, 2019
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