Shifting NFC Share of Provinces to Islamabad Won’t Fix Fiscal Gap: KP Finance Minister

Distribution of the National Finance Commission (NFC) share from the provinces to Islamabad won’t fix Pakistan’s fiscal gap, according to Khyber Pakhtunkhwa (KP) Finance Minister Taimur Saleem Jhagra.

In a series of tweets, the minister debunked the center’s approach to fixing Pakistan’s fiscal deficit by siphoning the NFC share to Islamabad. He also said that his province has by far shown better tax revenue statistics than the Federal Board of Revenue (FBR).

The KP finance frontman acknowledged that Pakistan has critical financing requirements, including defense, on which there should be no compromise, but at the same time, the country cannot afford to run a fiscal deficit at its current level. Instead, it must significantly expand its revenue base.

Jhagra said Pakistan needs to manage its costs and didn’t seem particularly impressed with Islamabad’s role and that of state-owned enterprises (SOEs) and DISCOs in the country’s progress. “Remember, despite the 18th amendment the monopoly on administrative leadership in provinces also lies with federal officers across all key services. This is not to point anyone out, but to show how incredibly lazy & incorrect the thinking on a reversal of the NFC award is,” he argued.

The minister warned that pensions were a big burden on the economy, totaling approximately Rs. 1,500 billion per year (center plus provinces) and growing at a rate of 25 percent per annum. He said, “Which government has done the most on pension reform? KP, followed by Punjab. Which government has done the least? Islamabad”.

Jhagra further mentioned that the KP government has been a better performer than the FBR, with the former increasing its tax revenue by 300 percent in the last three years. He added, “An offer exists to the FBR to collaborate on Agriculture Income Tax collection from KP. Response: zero”.

In a unitary system, the center would need to be able to take responsibility for generating resources, as well as for distributing them fairly. Jhagra pointed out that not taking Balochistan on board with the Reko Diq deal negates that system.

Calling out former finance minister Miftah Ismail and current Finance Minister Ishaq Dar on their inability to reduce the fiscal deficit. He stated, “As the national divisible pool increased by 20% this year and as did provincial shares, where did Miftah Ismail & PDM act to reduce the deficit? Grants to GB, AJK & ex-FATA – the very regions that have no constitutional means to get any funding from the divisible pool”.

“Instead, civil servants were given a 150% executive allowance, tax breaks proposed for rich Pakistanis (shot down by IMF), foreign assets taxed in a way to completely eliminate any chance of accurate declarations in the future and massively limit the economy’s documentation,” the minister explained.

Coming back to the NFC debate, Jhagra said if Islamabad does not want to include provinces in tax policy decision-making as FBR board members and does not want to set an example by getting its own fiscal house in order, no tweaking of the NFC formula will help.

The provincial minister closed the thread with the viewpoint that the right course correction necessitates a collaborative goal for the federal and provincial governments to create a fiscal model that strengthens federalism while also addressing the state’s financial problems. “This is not possible without recognizing that the provinces are Pakistan. And this journey is not possible without elections, now,” he concluded.