During the meeting, the federal finance secretary asked Dr Muhammad Iqbal, FBR Member Inland Revenue-Policy, to share position of revenue collection with the provincial representatives. The member FBR informed that during the first nine months (July-March) 2016-2017, the FBR collected Rs 2,257.6 billion, showing 8.1 per cent increase as compared to the corresponding period of the last financial year. He informed that the revenue registered 13% growth during March 2017. He shared that FBR would need 16.3% growth over the last year collection in order to meet the annual target. He further informed that against the revenue target of Rs 2,426.8 billion, fixed for July-March (2016- 2017, the FBR has achieved 93% of the target. To sum up, tax authorities said if the current collection trend continues, the FBR expects a shortfall of Rs 120 billion in the revenue target of current fiscal year. The federal finance secretary asked the provincial finance secretaries to adjust their expenditures accordingly.
The Sr Joint Secretary (PF), Finance Division, made a brief presentation on provincial fiscal operations and highlighted province-wise details of provincial own receipts, expenditures for the period from July, 2016 to February, 2017 and the position of federal transfers during the past nine months of current financial year (CFY). He stated that though the combined picture of provincial own receipts and expenditures exhibited a healthy performance of the provinces, yet the segregated data showed variation in the provincial achievements. He indicated that during the past 9 months, provincial own receipts (combined) remained 56% of the budget estimates (BE), whereas the expenditures were reported as 46% of BE. In the case of Sindh and Punjab, it was observed that both tax and non-tax receipts were relatively lower as compared to other provinces. With regard to the revenue receipts, Khyber Pakhtunkhwa showed a normal trend, whereas Balochistan had almost achieved its revenue target, ie collection was 98% of the budget estimates.
The finance secretary Punjab pointed out difference in numbers, what he had vis-a-vis the presentation; however, he explained that the numbers were obtained from the provincial civil accounts. While explaining the position of expenditure on current side, the finance secretary Punjab informed that the provincial government is struggling to meet huge unbudgeted liability of pension expenditure as a result of court decisions. He also raised different issues relating to input tax adjustments. The federal finance secretary advised the member FBR to arrange a meeting with the provincial revenue authorities to resolve those issues.
The federal finance secretary expressed concern over the increasing trend of current expenditures of Sindh, which were 25% higher as compared to the corresponding period of the past year. He advised FS Sindh to be watchful as such trend might create difficulties in the coming months. The FS Sindh explained that one of the reasons of increase in current expenditures was due to onetime payment, amounting to Rs 27.00 billion, on account of electricity bills. He also raised the issue of wrong assessment of advance income tax by FBR.
The FS Khyber Pakhtunkhwa (KPK), while explaining the position of provincial revenue receipts and expenditure, informed that due to a major policy decision taken during the last year regarding doctors pay package, the expenditure on current side had gone up considerably. Otherwise, the overall expenditures trend is normal. The finance secretary Balochistan informed the meeting that Balochistan government had also given handsome package to the doctors for improving performance and its financial implications were around Rs 1.5 billion. He said that it had also hit hard their current side spending.
The federal finance secretary while updating the meeting on the performance of FBR indicated a shortfall of around Rs 120 billion. Regarding cash balance position, he urged upon all the provincial finance secretaries to extend their co-operation to the federal government and prioritise their spending in such a manner that the important provincial obligations like spending on education and health may not be curtailed. He also invited the attention of all the provincial finance secretaries to weak public financial management, particularly at the local bodies'' level. He maintained that as a result of low capacity to spend, the public money at local governments'' level could not be spent for optimal value. Therefore, he urged upon all the provincial finance secretaries to take necessary capacity building measures and bring improvement in service delivery systems at provincial as well as local bodies'' level. He also hinted towards wide intra-provincial and inter-provincial disparities. Summing up discussion, he shared a revised cash surplus target for the CFY 2016-17, to be achieved by all the provinces.
The meeting discussed the IMF paper ''Fiscal Decentralisation and Macroeconomic Challenges in Pakistan.'' The main points of paper included that the basic design of 7th NFC Award was broadly in line with general principles, but there are a number of imbalances.
Unlike other countries, the vertical asymmetry in Pakistan is in favour of provinces and there is no mechanism to correct it, which is, therefore, leading to higher public debt.
There is a need to develop a mechanism to co-ordinate fiscal stance, tax policy and administration across layers of the government. The devolution of responsibilities viz-a-viz transfers to provinces under 7th NFC was not well-synchronised. Apart from excellent provincial governments'' efforts to collect GST on services, the collection in other sectors remained more or less stagnant. Spending on social sectors has gradually increased but it was still low.
The mechanism for financing of areas of joint responsibility is absent. No provisions for national emergencies which may result into greater vulnerability to fiscal shocks, main points of the IMF paper added. Based upon its analysis, the IMF suggested different measures, such as effective fiscal rules, technocratic fiscal council under CCI, increasing flexibility of the fiscal framework, jointly-funded contingency fund, improving incentives and administration for tax revenue mobilisation, a National Tax Commission, burden-sharing with reference to joint tasks, capacity building to improve PFM frameworks and time-bound strategy for Local PFM Framework etc.
The federal finance secretary invited all the provincial finance secretaries to offer their comments on the said paper. The finance secretary Balochistan was of the view that National Disaster Management Authority (NDMA) and Provincial Disaster Management Authority (MDMA) were functioning in the country to cope with the emergencies and meet the contingencies. Therefore, the system is already in place, which may be strengthened.
The finance secretary Punjab informed that as a result of Provincial Finance Commission Award, announced in December 2016, about 44% additional transfers were made to the local governments. He added that Punjab government had also requested the World Bank to help in capacity building, etc, at the local level.
The finance secretary Khyber Pakhtunkhwa said that complete synchronisation was not possible due to political issues. With regard to establishment of Technocratic Council under the CCI, he apprehended that such council would not be able to keep itself at distance from the political influences. The finance secretary Sindh informed that Sindh is bearing a huge expenditure on account of law and order from current side. He suggested that general sales tax (GST) on goods may be devolved to the provinces and that provinces may be given representation in the federal tax policies.
The federal finance secretary, while wrapping up the meeting said that services sector has 57% share in the GDP, but it is providing 0.5% revenues. Similarly the agriculture sector contributes 21% of the GDP, whereas it provides less than 0.5 % share in the revenues. The federal finance secretary requested all the provincial finance secretaries to furnish their comments on the said study paper to the Finance Division, sources added.
Copyright Business Recorder, 2017