National Finance Commission.dockjljk

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NATIONAL FINANCE COMMISSION

The NFC Award orNational Finance Commission Award is the distribution of financial

resources among the provinces of Pakistan by the federal government on annual basis.

Certain types of taxes collected in each province are pooled, and then redistributedaccording to the NFC formula. NFC is constituted under Article 160(1) of the 1973

constitution (Annex I) and proposed to be held at the intervals of five years.

MEMBERS OF NFC

Its members are Federal Finance Minister (Chairman), Provincial Finance Ministers and

other concerning experts which the President may appoint after consultation with

provincial Governors [Constitution of Pakistan (1973)].

Background and History of NFC

In 1971, Pakistan was cut into two by our enemies with the indirect support of our fellow

Pakistanis and hence we lost East Pakistan to Bangladesh. There are many reasons that can

be attributed to the 1971 incident but one of the major one is the Distribution of

Resources among the provinces i.e. East Pakistan and West Pakistan.

Since East Pakistan was responsible for majority of our output, it was its right to get the

major portion of it as well, however, it was not allowed to take when it actually owned and

most of it was used in West Pakistan. This infuriated the Bangladeshi people and

contributed towards their final revolt against the Government owned by West Pakistan.

It is worth mentioning here for the ready reference of our readers that Bangladesh i.e. East

Pakistan before 1971, was more populous then West Pakistan but it was still discriminated

by the West Pakistan i.e. current day Pakistan. At that time, the distribution of resources

based on population was never raised by anyone since it would have resulted in greater

share of East Pakistan from the Federal Divisible Pool or in Federal Budget for East and

West Pakistan.

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TAXES IN THE DIVISBLE POOL

Taxes are pooled and distributed: Certain types of taxes collected in each province are

pooled, and then redistributed according to the NFC formula.

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TAXES IN THE DIVISBLE POOL REDISTRIBUTED BY THE

NFC FORMULAE

INCOME TAX

GENERAL SALES TAX

WEALTH TAXES

CAPITAL GAINS TAXES

CUSTOM DUTIES.

Federal excise duties excludingthe excise duty on gas charged at

well-head

Any other tax which may be levied

by the Federal Government.


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MAIN CHARTER OF THE NFC

(Article 160(1) of 1973 Constitution) NFC is constituted under Article 160(1) of the 1973

constitution (Annex I) and proposed to be held at the intervals of five years. Its members

are Federal Finance Minister (Chairman), Provincial Finance Ministers and other

concerning experts which the President may appoint after consultation with provincial

Governors [Constitution of Pakistan (1973)]. The main charter of NFC is to recommend on

the following [Pakistan (2006b)]:

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The

disbursement of

grants toprovincial

governments.

The distribution of

specified taxes,duties between

federationandprovinces

Any other

financial matter

referred to

commission.

The borrowing

powers exercised

by federal and

provincial

governments

MAIN

CHARTER OF

THE NFC


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7th NFC Awards:

Location: Lahore Chairperson: Finance Minister Shaukat Train Duration of arguments: 3

days.

The federal government has agreed to cut tax collection charges from 5.0 per cent to 1.0

per cent and this amount would also be added to the divisible pool. About the thorny issue

of sales tax on services, he said the NFC recognized sales tax on services as a provincial

subject and it might be collected by the respective provinces.

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THE MULTIPLE INDICATORS UNDER 7TH

NFC AWARD

Population 82.0%

Poverty/

Backwardness

10.3%

Revenue Collection/

Generation 5.0%

Inverse Population

Density 2.7%

(Urban-Rural)


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Provincial share of the divisible pool would increase from the present 47.5 per cent to 56

per cent in the first year of NFC (2010-2011) and 57.5 per cent in the remaining years of

the award under the vertical distribution of resources. He claimed that this share would

virtually be over 60 per cent. During Musharraf regime, provinces were demanding for a

50% provincial share in the divisible pool.

Issues Related To National FinanceCommission

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Punjab 51.74%

NWFP 14.62%

Sindh 24.55%

Balochistan

9.09%

56 %

Provincial

Share of Total

Divisible Pool


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ISSUE NO 1

SINDH PA PASSES BILL TO FORM BOARD TO COLLECT ST ON

SERVICES

Friday, June 04, 2010

By Imtiaz Ali. THE NEWS.

KARACHI: The Sindh Assembly on Thursday unanimously passed a bill to establish the

Sindh Revenue Board (SRB) to collect sales tax on services. It would be a robust and

autonomous organization on the pattern of the Federal Board of Revenue (FBR) to collect

the benefits which weve got through the National Finance Commission (NFC) award,

said Sindh Chief Minister Syed Qaim Ali Shah on the occasion. Today is a historic day as

after 30 years of struggle we have achieved what we had lost, he added.

The federal government has been arguing that the FBR should collect ST on services as

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Sindh had no collection agency, added Qaim while explaining the aims and objectives of

the Sindh Revenue Board Act. But Sindh has now created a board and would collect sales

tax on services. When the bill was unanimously passed into law, PPP legislators chanted

the slogan of Long Live Bhutto. The SRB Bill was not included in Thursdays agenda

and it was introduced by the law minister by preparing the supplementary order of the day.

The minister introduced the SRB Bill after withdrawing the earlier Sindh Revenue Services

Board Bill.

Table no 1

Actors Political power to resolve

the issue

Position of the

actor

Analysis

PROVINCIAL

ASSEMBLY

The rating will be 3

because unanimously they

have made a decision toestablish a board and they

have a power to take a

decision following the laws

for their province.

3 because

provincial

assembly has takena decision and has

developed a

consensus in the

provincialassembly.

Provincial assembly

has played an

important role in thismatter.

PPP legislators The rating will be 3because PPP legislators are

the members of the ruling

party and have affected theprocess of making bill of

their particular province.

The rating is 3because in they

provincial

assembly they havestrong hold in

decision making.

PPP legislators arethe people who have

played an important

role in the billmaking with

unanimous decision

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Social Actors The social demand of

people for more funds andrevenues have caused thebill to passed so the rating

will 2

The position of

actor has the ratingof 2 because theyinfluenced the

assembly to

circulate the billbut the ultimate

decision is in the

hand of thelegislators.

The social actors

have played the roleof telling theprovincial

government about

Their needs throughtheir representatives.

Table No 2

Related department

to deal with

Current project on

the issue

Suggestion strategy Analysis

FBR Federal Board Of

Revenue

According to me the tax

should be collected by thefederal government

because if it will be

collected by the provincial

government then it willresult into deficit fiscal

policy.

Overall the decision

seems to beeffective but

according to me the

federal government

should be handlingall the resources

and revenue

collection.

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Issue no 2

Punjab planning to collect taxes itself

Wednesday, June 16, 2010

Daily Times

Provincial finance minister says move to be in accordance with former federal finance

ministers promise in NFC Award

Staff Report

LAHORE: Punjab is developing a mechanism for collection of tax on a provincial basis in

accordance with former federal finance minister Shaukat Tareens promise to shift the tax

collection rights to provinces in the National Finance Commission Award meeting, Punjab

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Finance Minister Tanveer Ahmed Kaira said on Tuesday.

Addressing a post-budget press conference at the CMs Secretariat, he said that Sindh was

pressing the federal government to shift the rights to collect tax to the province, adding that

if this demand was accepted by the Center then Punjab would also collect its own taxes. He

said that 90 percent of the countrys sales tax revenue was generated from the telecom

sector, out of which over 60 percent was being collected from Punjab. Tax collection will

be easy for Punjab and under the agreed NFC Award formulae, this year instead of five

percent, we will pay only one percent charges to the Center for tax collection, he said.

Punjab Finance Secretary Tariq Mehmood, Planning and Development Chairman Javed

Aslam and Adviser to the CM Sardar Zulfiqar Khan Khosa were also present at the press

conference.

Table no 1

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Table no 2

Actors Political power to resolve the

issue

Position of the

actor

Analysis

1.FederalGovernment

The rating for this actor is 3Because in the end due to

consensus of all the provinces

on this matter it is the federalgovernment which takes a final

decision.

The position of thisactor is quite strong

so the rating will be

3.

We have analyzed that thefollowing decision of

federal government to shift

the right of tax collectionwas made by the federal

government in order to

revise the NFC formulae

and to give provinces moreshare.

2. Provincial

Government

The rating for this actor is 3because in this particular issue

the main pressure was built bythe provincial government

which resulted into the

proposal made by the NFC tothe government.

The position of this

actor is strong so

the rating will be 3.

The role of provincial

government in the particular

issue is significant that ithad raised this issue to

collect taxes by itself to

reduce the tax collectioncharges.

3. Societal

Actors

The pressure built up by the

people of Punjab which made

the provincial government to

think on this matter to take adecision according to the needs

of the most populated provinceof Pakistan.

The rating related

to the position of

this actor will be 2.

Societal and particular

demographic aspect has

played a part here to press

the government to take thisparticular decision.

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Related department

to deal with

Current project on

the issue



Revenue

According to me the tax

should be collected by thefederal government

because if it will be

collected by the provincialgovernment then it will

result into deficit fiscal

policy.

Overall the decision

seems to beeffective but

according to me the

federal governmentshould be handling

all the resources

and revenuecollection.

ISSUE NO 3

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Decisive Meeting to Settle Issue Today

Friday, May 07, 2010 NEWS FROM DAILY TIMES

Staff report.

ISLAMABAD: A decisive meeting to settle the value-added tax (VAT) dispute betweenthe federal government and Sindh would be held today (Friday), where the future of VAT

would be determined. President of Pakistan Janaab Asif Ali Zardari has called Sindh Chief

Minister Qaim Ali Shah for discussion over the matter and a political decision is expected

on VAT. It is expected that the revised Presidential Order on 7th National Finance

Commission (NFC) Award would be issued with inclusion of revenue distribution criteria

between provinces and general sales tax (GST) on services as provincial right to remove

the concerns of Sindh. Sindh has expressed its firm resolve to implement by itself VAT on

services and collect itself from the next fiscal year.

Pechuho said that Sindh has established a department Sindh Revenue Services (SRS) for

collection of VAT on services.. Pechuho said Sindh wanted to collect VAT on services as

the province was the major contributor of the total GST collected from the services sector,

but the FBR distributions to the provinces is based on previous NFC distribution that was

on population basis.

The contributions made by Sindh in the overall services sector accounts to over 40 percent

in the national collection but under the existing distributions formula Sindh would only get

around 20 percent based on the population of the province.

Table no 1

Actors Political power to

resolve the issue

Position of the

actor

Analysis

Federal

Government

Rating:3 Federal Govt.

has maximum powers to

Position of this

Actor is strong.

Federal Govt. is going to

implement Value Added

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formulate, govern and

implement any type of

tax in the nation.

Tax which will increase

the current prices of

many products. Theimplementation is

dependent on the

consent of Province.

Provincial

Government

Rating: 3 Ultimate

decision regarding ValueAdded Tax depends upon

the consent of the

Province.

Position of this

actor is strong butafter Federal

Govt.actor.

Province wants to

implement and monitorValue Added Tax itself

through a well

established andorganized

departmentSindh

Revenue Services

Social Actors The recommendations

forwarded by the provinceSindh seems to be fruit

full as it will help the

Province to help its population and different

departments in the future.

The bases of the decisionmay be considered good

and its outcome may be

spread over coming

future. The motive ofSindh should not be

ignored.

The rating related

to the position ofthis actor will be

2.

Social and particular

demographic aspect hasplayed a part here to

press the government to

take this particulardecision.

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Table no 2

Related

department to

deal with

Current project

on the issue



Revenue

VAT should be collected

by the Province itself

through well organizeddepartment to assist the

Province to tackle many

monetary issues. Theremust be controls over

collection and timely

reconciliations must be

prepared

In nutshell the decision

of self collection seems

to be effective. So itshould be initiated.

Federal Govt.should

delegate special powersto the Province in this

respect.

Issue no 4

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Federal budget did not reflect the NFC decisions: Sindh

By Kalb Ali

Sunday, 13 Jun, 2010

Sindh Chief Minister Qaim Ali Shah briefs media during a Post Budget press conference atthe Chief Minister House, June 12, 2010. Photo by APP.

A letter written to the prime minister by Sindh Chief Minister Qaim Ali Shah, who is also

finance minister of the province, said the federal finance ministry did not produce actual

contents of the NFC award signed between the provinces and the federation in December

last year. The province said that although the gazette relating to the NFC award issued in

March this year had been repealed by the gazette issued on May 10, allocations for the

provinces in the budget had been determined on the basis of the March gazette.

Adviser to the Sindh chief minister Dr Kaiser Bengali told Dawn that the federal finance

ministry had been making the same mistake again and again.

This is strange to see that main contents of the NFC award have been ignored by the

authorities in the finance ministry, he added.

Distribution criteria for allocations for the provinces have been ignored and only

distributions on the basis of population have been written in the federal budget document.

Sindh has also raised a technical objection to the document -- inclusion of GST on services

recovered from the provinces. The province said the document had mentioned zero

allocation for the provinces in GST (central excise mode) for 2010-11, but collections from

the telecom sector had been shifted to GST (provincial mode).

This transfer from one head to another will cause financial losses to the province, Sindh

finance secretary Dr Fazal Pechuho told Dawn, adding that collections from the telecom

sector had to be in the divisible pool, instead of straight transfers.

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Table No. 1

Actor Political power to

resolve the issue

Position of actor Analysis

Federal government:

Yousaf Raza Gillani

The rating for this actor

is 3 because the power of

the prime minister is

higher in this issue to

solve the problem.

The position of

the actor is strong

thats why his

rating is 3.

Chief Minister of Sindh brings

the problem into the notice of

Prime Minister to take action

against the problem.

Provincialgovernment:

Qaim Ali Shah

Provincial government:The rating for this actor

is 3 because he is the

Chief Minister and also

the finance minister of

Sindh and he raises the

problem and also have

the enough power to

solve the problem.

The position ofthe actor is strong

thats why his

rating is 3.

Qaim Ali shah as Chief

Minister and also as FinanceMinister of Sindh raises the

issue that deliberate attempts

have been made to causefinancial losses to the province.

Advisor:

Dr Kaiser Bengali

Dr. Qaiser Bengali is an

economist and his rating

is 1 because he acts as an

advisor in this issue.

The position of

the actor is weak

thats why his

rating is 1.

Dr. Kaiser Bengali advises that

the federal finance ministry

had been making the same

mistake again and again and he

has the weak power as he actsas an advisor.

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Table No. 2

Related department

to deal with issue

Current project

on issue

Suggested strategy Analysis

Federal budget didnot reflect the NFCdecisions: Sindh.

Federal governmentshould follow thecontents of the NFC and

the distribution criteria

for allocations for the provinces should not be

based on population bases

and also there should be

allocation for theprovinces in GST (central

excise mode).

It is the right of the Sindhgovernment to complain forthe losses incurred by it and

federal government is

responsible for that. If thecontents of the NFC are

properly followed, there will

be equal distribution of

recourses among the provincesand no province can occur

loss.

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Issue no 5

Saturday, June 12, 2010

Sincere implementation of Balochistan package stressed

ByZeeshanJavaid

ISLAMABAD: The federation and its dominant civil-military policymakers will have to

face serious consequences if they hindered the genuine implementation of the Balochistan

package, the National Finance Commission (NFC) and the 18th Amendment, Senator Raza

Rabbani said on Friday. Addressing the inaugural session of a two-day conference on the

Aghaz-e-Haqooq-e-Balochistan package and 18th Amendment, Rabbani said there was a

need to resolve the worsening Balochistan conflict and to address the genuine grievances of people through dialogue and political process.

Rabbani said the country was facing a critical situation, as a large trust deficit existed

between the federation and the provinces. He said although the county was created as a

welfare state, its dominant civil-military ruling elite had turned it into a national security

or a garrison state while hampering the political process and democracy.

He said the absence of a political process in the country had worsened the conflict and the

recent confidence-building policy measures were meant to correct the deep-rooted political

and economic imbalance and to empower the provinces by giving them their political,

economic and administrative rights through political consensus and process. Balochistan

Governor Zulfiqar Magsi highlighted the development, political and law and order situation

in the province. He said although the NFC, the Balochistan package and the 18th

Amendment had been announced by the federal government, the province

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Table no 1

Table no 2

Actors Politics power to

resolve the issue

Position of actor Analysis

Federal government

Senator RazaRabbani

Senator Mir

MuhammadKhan Marri

The rating for these actor

is 3

Because through theirdecisions the federal

government take decision

to resolve the issue. So

he has power to resolvethe issue.


actor is very strong

so its rating will be3

We have analysis that the

decision to resolve this

issue through politicalprocess.

Provincial

government

Governor Zulfiqar

Magsi

The rating for this actor

is 3Because he has strong

power to resolve this

issue.


actor is strong sothe rating will be 3

According my analysis,

the development,political and law and

order situation in the

province announced bythe federal government

should be also

implementing. So that the

province conflict can beremove.

Societal Actors

Participants andstudents

They emphasize on

government to resolve

this issue

They have rating of

2

Through student and

participant emphasize on

the government the issuehas resolve

Related department

to deal with the issue

Current project on

issue

Suggested strategy Analysis

Sincere implementationof Balochistan package

stressed

According to mydecision the

announcement given

by federalgovernment should

be implementing so

that the issue have

been resolve.

I have analyzedthat we can

remove the

conflict throughpolitical process.

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National Finance Commission.dockjljk