Deduction at source
The financial wrangling between the provincial and district governments is just beginning. The situation in Karachi is a case in point
By Shujauddin Qureshi
Aimed at providing powers to people at the grassroots level, the new district government system, after its implementation two years ago, is still passing through an age of infancy, particularly as far as financial issues are concerned.
The situation in Karachi is perhaps the worst, given that it is home to more than 14 million. The devolution plan divides Karachi city into 18 towns with 278 union councils. These towns, parts of the main city, are divided administratively with governments responsible for all municipal functions including water, sanitation and street lights. The City District Government of Karachi (CDGK) with a 255 member council is the supervisory body. It looks after education, health, main roads and bridges etc.
Although the Sindh Local Government Ordinance (SLGO) 2001 has been promulgated to run the district governments and many amendments have been made to make it effective, there is no method for the distribution of financial resources. The three-tier local government system, comprising district government, towns or taluka (tehsil) and union council governments could not take off in practical terms because of lack of coordination and other political considerations.
This fledgling system received a huge blow particularly after the formation of the provincial and federal governments after the October 2002 general elections. Proving correct the apprehensions of certain experts that the district government system would face resistance once the provincial governments are formed.
A tug of war started between the provincial Sindh government and the city government as early as December 2002. The appreciable one-and-a-half year performance of the CDGK came to a standstill as provincial minister Muhammad Hussain started interfering in the affairs of the local government.
The reason for this power tussle was mainly political – as the provincial government is dominated by the urban-based Muttahida Qaumi Movement (MQM), whereas the City government nazims belong to Jamat-e-Islami (JI). Also a majority of town nazims and union council nazims are affiliated with JI since MQM boycotted the local government polls. The rest of the nazims have political affiliations with Pakistan People’s Party, despite the fact that the elections were held on a non-party basis.
As a consequence, development activities in the city are suffering; the provincial government has discontinued transferring funds to the district governments. “Even the funding under Khushhal Pakistan Programme has been stopped,” complains a town nazim.
The local governments depend on the federal or provincial governments for resource allocation. The Federal Matching Grant, which is being provided to the local governments after abolition of the octroi system in 1999, is the main source of finances for the local government system these days. The district governments receive this grant and distribute it among the town governments, according to a distribution formula. The town governments then pass it on to the union councils for carrying out their work.
“With the amount granted we can only pay the salaries and petroleum expenses of vehicles,” says Farooque Ahmed Memon alias Faria, the nazim of the largest town of Karachi, Saddar. “We cannot initiate development projects we committed to in the budget last year,” he elaborates.
Saddar Town has over 3,400 municipal and other staff, and their salaries sum up to at least Rs 12 million per month, Faria says. “The town administration has to maintain over a 100 vehicles including garbage disposal and water supply trucks.”
The situation in other towns is no different as the town managements depend on the city government for funds to run their day-to-day affairs. “We are running our affairs with Rs 15 million soft loan given to each town by the city government,” says Abdul Khaliq Jumma, Lyari Town nazim.
Comprising mostly old areas of Karachi, Lyari Town is facing acute civic problems including water shortage and a defective sewerage system. Funds are required for repairs of road, supply of drinking water and a proper sewerage system, says Jumma. But he further adds that even the funding, earlier provided from Khushhal Pakistan Programme (KPP) has been discontinued.
“Under the KPP, the Lyari Town had already spent Rs. 30 million on the construction of roads, water and sanitation facilities,” he explains. The provincial taxes have not yet been transferred to the district governments because of which the working of the local governments is suffering.
Under the formula of distribution of Octroi Income, which is provided by the federal government from General Sales Tax (GST), 52 per cent of the total revenue goes to CDGK, where as the remaining 48 per cent is distributed among 18 towns according to their requirements. But the exact amount is never sanctioned. “We have been receiving 25 per cent less than our share,” City Nazim Naimatullah Khan said in his last year budget speech. And now as the city government is in the process of preparing a budget for the next fiscal year, the grant promised last year has still not been issued. “We received limited funds from the Federal Matching Grant this year,” said Chairman of Finance and Planning Committee, CDGK, Council Nazir Ahmed Sajid. “There is a shortfall of about Rs 4.5 billion on account of transfer of resources from the federal and Sindh governments,” he adds.
The CDGK has to receive over Rs. 4 billion per annum from the federal government, which is equal to the Octroi tax collected by the defunct Karachi Metropolitan Corporation (KMC) in 1999. The CDGK has urged the government to increase the amount of funding after four years. “We are receiving Rs 387 million per month from the federal government, which is distributed among towns according to a sharing formula,” says Nazir Sajid.
But this amount is received a month late; when in a fiscal year the CDGK gets only 11 such instalments. Besides federal funding, the CDGK should receive about Rs 3 billion from the Sindh government on account of its claim on resources of devolved bodies, which had to be transferred to the City government. These bodies include defunct Karachi Development Authority (KDA), Lyari Development Authority (LDA) and Malir Development Authority (MDA), Karachi Water and Sewerage Board (KWSB) and Karachi Building Control Authority (KBCA).
Moreover, property tax, entertainment tax and some other provincial taxes, that were to be transferred to the district governments have still not been handed over – and “there is no hope for it this year,” maintains Sajid.
Even the Sindh government has deducted an amount of Rs 852 million at source because the former civic bodies like KDA, LDA and MDA owed them the amount. The Sindh government has only transferred Rs 103 million to the CDGK from property and entertainment tax, official sources reveal. “We have approached the Sindh government for release of Rs 852 million,” mentions Nazir Sajid.
According to CDGK sources, although the City government generates some revenue on its own through fees and charges like charged parking, advertisement fees, trade licence fee, food licence, the total is negligible. This year CDGK has granted a contract of Rs 61 million to a single contractor to collect charged parking fee from the entire city. The charged parking fee is considered one of the main sources of income for Karachi City government after abolition of the octroi system.
The power struggle is on at lower level as well. Many departments under the control of the City government were to be transferred to the Town administration, but this decision has not been implemented as yet. For example, the Water Board and Karachi Building Control Authority, which were under the control of the defunct KMC had to be shifted to towns under the Devolution Plan.
Despite the fact that CDGK and Towns administration are bravely pleading their case at different levels, the frustration among town nazims is obvious these days. “Sometimes I feel, where am I stuck. The system should be allowed to run,” comments Farooque Faria, the energetic Town nazim of Saddar.
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