NFC AWARD - A MATTER OF DEBATE

KAMRAN AHMED SOOMRO
Sep 07 - 13, 2009

National Finance Commission (NFC) award is the distribution of revenue, which is collected from the federating units, among the provinces and the federation. It is based on the article 160 of the constitution of Pakistan 1973. In the article it is mentioned that the fair policy must be adopted to allocate the right share of the collected revenue among the provinces. The commission consists of four provincial ministers, headed by the federal finance minister and four other members from the four provinces.

It is a legal obligation to constitute the award after every five year. NFC award is based on wealth tax, Income Tax, Sales Tax, General Sales Tax, Excise duty etc.

Pakistan has federal governance system in which the federal government integrates all the four federating provinces. The federal government has to play an important role to bring harmony and unity among the provinces in favor of the country. At every stage of the governance, it must cooperate and support the provinces.

Furthermore, it is the most imperative thing for the federal government to observe partiality in dealing with all the provinces without any difference and any biasness of any kind.

Though there is a variety of cultures and people among the provinces, they are bound in a circle of federation. Their demographic and geographic conditions are very much different, so is the case with their languages, living conditions, traditions, and customs.

Hence, it is most of the times very tough task to find consensus among all provinces on any national issues. NFC Award has been a matter of debate and criticism for the decades.

There has been absence of consensus among the provinces on the criteria of revenue distribution from the divisible pool. Each time the award is announced, it raises various critical issues. Soon after the 1973 constitution, the announcement of the then NFC award based on single criterion of population created conflict among the provinces. Especially the smaller provinces felt deprived of their due share in the revenue.

Punjab being the most populated province of the country has been receiving greater share of the revenue against its smaller contribution in the revenue generation.

Punjab receives more approximately 60% from divisible pool against contribution of about 30% in the total tax collection, while Sindh is able to receive hardly 28% of the share of award against its contribution of about 70% in the revenue collection.

Sindh contributes enormous revenue to divisible pool through taxes on service sector, custom duties, levies and taxes on oil and gas and industrial activities.

Balochistan receives only about 7% share and NWFP only 5% share of the revenue distribution, though these provinces also contribute much through natural resources, dams, mines, oil and gas.

There is also an unresolved issue of vertical distribution of revenue. Federation holds more than 60% of the total revenue and the remaining is distributed among provinces.

Federation must take only such portion of the revenue, which is necessary for funding important sector like defense and more proportion must be transferred to the provinces.

It is an old system of financial award to make population a basis for the revenue distribution. A province that contributes a lot in the revenue generation on account of its active economic and financial performance is given an undue share, much lesser than the province that has a smaller contribution, only on the ground of the population.

Sindh government's stance to demand a change in the NFC award with replacement of the only-criterion of population with multiple criteria must be honored and accepted. It is possible to take population a decisive base if all the provinces are equal in terms of socio-economic conditions. But, the real picture is different. Smaller provinces are already backward in many areas like literacy rate, social development, employment opportunities, education, health, infrastructure, peace and security etc.

Sindh has been crying for decades for the unfair attitude of the federation but has always been neglected. Today, the people of a rich province are poor and leading miserable life.

Balochistan is also burning. People are weary of the federation and are getting against it only due to the chronic step-motherly attitude of the federation. So is the case with NWFP.

Now when the 6th NFC award is under process, it is important to reconsider the case, hear the suggestions of provinces, restructure the formula and allow fair and proper distribution of the revenue. Multiple criteria like backwardness, poverty, socio-economic conditions, revenue contribution, and population must be set the grounds for the income distribution. Unlike the past, it is expected that the current democratic government will keep in mind the actual concept of federation and will equally deal all the provinces.

For decades, this critical issue has been the hurdle in the implementation of strong and successful federation. Lack of prudential decision-making has been causing the feelings of disharmony and deprivation among the provinces. It is hoped to see some desirable change in the design of next award.