The collection cost of tax has been brought down from the fixed 5 per cent to the actual cost certified by the Auditor-General. The actual cost is not perceived to be more than 1 per cent of the gross tax collection. Under the 7th NFC Award, the second important departure from the past relates to the composition of the divisible pool. Item (d) in the past merely referred to "taxes on sales and purchases" and in recognition of the constitutional right of the Provinces to tax services, it has now been made clear that the federal government can only levy and collect sales tax on "goods imported, exported, produced, manufactured or consumed."
Under the 7th NFC the GST on services was transferred to Provinces after deducting 2 per cent collection charges. The provincial share in the net proceeds of the divisible pool has been increased from 45% (2009-10) to 56% (2010-11) and further to 57.5% for 2011-12. The economic outcome of abolition of the concurrent legislative list was that the power to levy fee in the functioning of devolved subjects has correspondingly been transferred to provinces.
The Federal Board of Revenue (FBR) has been advised that no taxation proposal is made about a subject that is not included in the federal legislative list or was part of the omitted concurrent list. This provides an opportunity to provinces to generate and spend their own resources as per their own development priorities.
Additionally, a number of revenue sources/taxes included in the federal legislative list part-I, have been deleted by the 18th Amendment which means that the Provinces now have the power to explore and activate their untapped revenue potential. The devolved revenue sources included duties in respect of succession to property, estate duty in respect of property and taxes on capital value of immovable property. In pre-18th Amendment arrangements, the federal excise on natural gas was paid to the province of origin, but not on oil.
Article 161 (1) has been amended with following sub-clauses; (a) the net proceeds of Federal excise duty on natural gas levied at well-head and collected by the Federal Government, and the royalty collected by the federal government, shall not form part of the Federal Consolidated Fund and shall be paid to the Province in which the well-head of natural gas is situated; (b) the net proceeds of Federal duty of excise on oil levied at well-head and collected by the Federal Government, shall not form part of the Federal Consolidated Fund and shall be paid to the Province in which the well-head of oil is situated".
Article 172 has been amended to allow the Provinces 50 percent of the ownership of mineral, oil, and natural gas within the province or the territorial waters without prejudice to the existing commitments and exclusive right to other natural resources within the territorial waters.
The latter, among other things, means that fish stock in territorial waters belongs to the Provinces. Accordingly, the clause (2) of the Article 172 has been amended and a new clause (3) added. These now read as: All lands, minerals and other things of value within the continental shelf or underlying the ocean beyond the territorial waters of Pakistan shall vest in the Federal Government. (3) Subject to the existing commitments and obligations, mineral oil and natural gas within the Province or the territorial waters adjacent thereto shall vest jointly and equally in that Province and the Federal Government."
Water and power is another area taken up for review by the 18th Amendment. Article 155 previously protected interests in water affected prejudicially by the supply from a natural source. It now covers "reservoirs" as well. Article 157 (1) permits federal government to construct power stations anywhere in Pakistan. The 18th Amendment has introduced an obligation to consult the host province by inserting this proviso; (1) provided that the Federal Government, prior to taking a decision to construct or cause to be constructed, hydro-electric power stations in any Province, shall consult the Provincial Government concerned."
A new clause (3) has been added for dispute resolution, which states: "In case of any dispute between the Federal Government and a Provincial Government in respect of any matter under this Article, any of the said Governments may move the Council of Common Interests for resolution of the dispute." A radical change introduced by 18th Amendment is the freedom, within limits, allowed to the Provinces to raise domestic as well as foreign loans and issue guarantees.
Article 167 related to borrowing by provincial governments now has a new clause to this effect, which states: "(4) A Province may raise domestic or international loan, or give guarantees on the security of Provincial Consolidated Fund within such limits as may be specified by the National Economic Council." The provincial governments are also expected to reduce their excessive dependence on federal transfers and mobilise their own resources as there is a wide room available to them to revise the tax lists and enhance their revenue base.