Re: Pakistan’s taxing, federation, equality (split from A critical look at the econom
I did not wanted to go into role of Federal government helping Punjab (and to extend NWFP) exploiting Sindh and Balochistan (especially Sindh as Sindh contributes most of Federal government revenue). Still, when some ignorants keep ranting BS all over the forum, I have to post how Federal government is doing that. At least we should know, acknowledge, understand and should fight against this exploitation as not doing that only create grievances amongst people living in province that get exploited.
Here is abstract of lectures in the conference related to NFC award in Pakistan and how Federal government is exploiting Sindh for Punjab. Please read it carefully as it will tell you different types of tax collections in Pakistan, contributions of Sindh to National revenue, as well as distribution mechanism. These figures are for Years from 1997-2000. Today, figures must be different, though exploitation continues.
http://sindh.ws/index.php?option=com_content&task=view&id=14&Itemid=31
or
http://sindh.ws/index2.php?option=com_content&do_pdf=1&id=14
(same above lecture)
National Conference on NFC Award
Written by Mushtaque Rajpar
Monday, 18 July 2005
Organized by the Participatory Development Initiative and Actionaid Pakistan
Noted Economist and writer Dr. Qaiser Bengali, Former Director Social Policy Development Centre, in his presidential address said just distribution of resources in the federal structure is essential for sustaining a federal structure in Pakistan.
There are two kinds of taxes, one is production based tax and other is consumption based tax. Central Excise duty and General Sales Tax is charged at production level where the goods and products are produced, but such goods and products are not necessarily consumed at the same place of production. For example in the early years of Pakistan, one third production capacity of Pakistan was located in Karachi but products were also sold and consumed in other parts of the country. But tax was collected in Sindh. Thus it required redistribution of revenue collection among the federating units. NFC was aimed at to create such a balance in distribution between and among the federal government and provinces.
Resources distribution under successive National Finance Commission (NFC) Awards, after the separation of East Pakistan, has been done on the sole criteria of Population, which is not seen just formula by other provinces like Balochistan and Sindh.
Smaller provinces keep on demanding the distribution of the resources on multiple criteria that takes into account the ratio of poverty, demography, area, backwardness and revenue collection efforts of provinces.
Giving background the NFC, Dr. Bengali said that 1991 NFC Award had three taxes in the federal divisible pool
• Income Tax (including corporate tax)
• General Sales Tax (GST)
• Central Excise Duty (CED)
Custom Tax remained exclusively with the federal government; it was not component of divisible pool, where three major taxes of the pool were distributed between and among federal government and provinces on this formula
Federal Government 20%
Provincial Governments 80%
[Award was distributed on the sole criteria of population under the very simplistic assumption the larger population consumes more goods.
In 1997 NFC Award federal government included custom duties as another component of divisible pool but changed the formula of distribution between federation and provinces.
Federal Government 63%
Provinces 37%
Under this formula two third of the total resources went to federal government while a meager share left for the provinces. Dr. Bengali said that Federal Government was very claver while including the customs duty in the divisible pool and then increasing its share knowing that with the passage of time custom duties (import duties) would come down (earlier import duties were above 150% and now have come down to 25% finished goods and 5% on parts to be assembled here) resulting its lesser income and Sales Tax is the growing tax, it put greatly in disadvantage position to provinces. Losses from the custom duties were substituted with GST.
On Horizontal distribution of resources (that is among the provinces) Dr. Bengali rejected the distribution of resources solely on the basis of population factor, he said nowhere in a Federal Structure of the government resources are distributed solely on the basis of population, in the neighboring India NFC is distributed on 11 grounds. Whereas our practice does not meet any criteria of equity because consumptions pattern are different, larger population does not necessarily qualify for higher consumption. Therefore a multiple criterion for NFC is urgently needed. He said that after his study of provincial GNP he has come to conclude that there are significant income transfers from Sindh and Balochistan to other provinces specially Punjab. He said Sindh is energy power house of Pakistan, which accounts for more than 40% of revenue share, produces more gas than Balochistan. **Hundreds of thousands of economic immigrants work in Karachi and send their incomes to their respective home provinces; they use social services (Education and health) of Sindh province but transfer their income to their province of origin. **
He disagreed with an earlier presentation claiming Sindh revenue share stands at 65%, Dr. Bengali said that GST and CED are charged at the port of arrival but not all goods are consumed in the province of arrival, goods are transported to other provinces there fore Sindh does have right to collect GST and CED over the goods consumed in other provinces.
Apart of NFC, the non-tax money of the federal government has been distributed disproportionately among the provinces, foreign loans and development allocations were also not made on the bases of equality and fair play.
He urged on the need for further research on these aspects and said that eventually the solution of these issues is the awakening of the people of Sindh, politicization of the people and bringing hundreds of thousands of the people on the roads the way people of Sindh did on issue of Water and against Kalabagh Dam. He said that Iron-Walls of General Head Quarters of Army (GHQ) in Rawalpindi will not listen the voice of researchers and scholars.
Speaking on the occasion, Mr. Abdul Hayee Baloch, former Senator and President of National Party, Balochistan, high lighted the socio-economic backwardness of his provinces and cried that Balochs still live in the 2oth century, they have not seen even last century. All the talk about the development of mega projects is driven by colonial interests, Gwadar is being developed not for the Baloch people but for the interest of federal government who plans to settle outsiders in order to convert the local Balochs into minority.
Baloch people need hospitals and schools but as they British colonizers laid down the railway tracks for their own needs, not for the interests of local people, similar practices have continued after the independence. He said the national highway being constructed in Balochistan is to facilitate the foreigners to be settled on the Baloch land. Development work has been so weak and ill planed that many roads and bridges have been washed away with the current floods and rains.
Of development funds, Balochistan is starved province; our province does not get even its own share of what we contribute to national exchequer.
Gas was discovered in Balochistan as early as in 1952, but even Quetta, the capital of the province, got the gas in 1980s, more than half of the major cities of the Balochistan are still without facility of gas, while for over 40 years we have supplied gas to Punjab and Sindh.
He demanded that Balochistan’s share in NFC should be increased so that higher allocation can be made for development of the backward areas. He said his party does not accept the NFC Award’s distribution on the basis of population and ratio between provinces and federation government. Other grounds should also be considered while announcing the award such as the poverty, area, revenue collection efforts, and backwardness.
He called for an urgent need of developing small dams in Balochistan as people suffer from drought season. ‘Has there been small dams in the province, we could have stored the current flood water in the small dams for future use’ he added. Hub dam was constructed but more than 70% of its water is supplied to Karachi, Balochistan benefits very little from them. He pointed that there are thousands of acres of virgin land, fit for agricultural cultivation but without water the land lays useless. Development activities in Balochistan have been very slow, such as even construction of the Hub dam took more than 15 years before it was completed. Bolan Medical College took 30 years to be completed. It is lack of interest on the part of the governments in the development sector in our province.
Mr. Baloch further said that lack of water in Balochistan often creates drought like situation, though country’s 40% livestock is reared in Balochistan but low agricultural growth, absence of fresh water is badly affecting the live stock in the province.
Scarcity of water is dragging water table further down, years back villagers could get water through hand pumps down to 50 to 60 feet but water table has gone down so much so that now one finds water below 500 to 600 feet.Senior Journalist Mr. Sabihuddin Gousi, President of Karachi Press Club, in his vocal speech** spoke in historical context of NFC and financial injustice with Sindh. His major points were:**
• British gave the idea of collective welfare in the Indian sub-continent, communication system and eventually in 1937 a constitution of union/federation.
• No Muslim rulers ever came up with such an idea on this part of land.
• During the British rule Sales Tax was a provincial tax but with the creation of Pakistan, under the emergency situation central government, first took away Karachi from Sindh province and then federalized 50% of the sales tax, but promising it for temporarily to overcome the financial deficit.
• Instead of relinquishing powers to provinces, central government imposed one unit and merged all four provinces into one administrative unit to counter weigh the bigger province Bengladesh (then East Pakistan)
• Separate identity of Sindh and other provinces was abolished and four provinces jointly were called West Pakistan.
• Sindh has to face the invasion of refuges from India, lands of Sindh were already given to non-Sindhis during last days of British rule, specially in Sanghar district where British rule was facing resistance movement from the Hurs of Pir Pagara, Punjabis and Bugtis from Balochistan were settled in that area to counter the insurgency of Sindhis.
• When Sukkur Barrage became functional, hundreds of acres of land was given to non-Sindhi settlers who were loyal to British rule over Sindh. Later on when another barrage at Guddu (Jecobabad district) was constructed more lands were given on civil and military bureaucracy.
• When Sindh Assembly refused to vote for ‘One-Unit’ provincial governments were removed, blackmailed and finally M. Ayub Khuhro was brought in to vote in favour of One-Unit.
• For first 25 years, Sindh did not receive just and fair treatment under the federal structure of Pakistan. When East Pakistan broke away and became independent Bangladesh, West Pakistan was named just Pakistan, a new bicameral legislature was established and first National Finance Commission was formed.
• To Sindh’s misfortune, first elected Government of Zulfiqar Ali Bhutto in 1970s instead of giving back 50% GST to provinces, it took away 100% GST and permanently federalized it.
• Nowhere in the world GST is considered as a central tax, everywhere its local/provincial tax.
• After the first award, Military took over under Gen. Zia but during his 11-years long military no serious effort was made for second NFC Award and infact no award was announced.
• Gen. Zia established two NFC Commissions 1979 and 1984, respectively; first commission never met and while second commission failed to reach at any conclusion, the finance minister of Sindh Javed Sultan Japanwala refused to sign an unfavorable award.
• Sindh has been betrayed by the so called nationalists like Mumtaz Bhutto, the ex-chief Minister and care taker chief minister in 1997, when he signed on most unjust NFC Award.
• The last NFC award was announced by an unelected caretaker government which was under no constitutional obligation to do that.
Mr. Sikandar Birohi, Program coordinator and Researcher, in his scholarly presentation with help of charts, told to the participants that the failure to announce over-due NFC Award is breach of constitution, under Constitution Federal Government is bound to announce new NFC every fifth year.
With his deep insight from Sindh’s perspective, Mr. Birohi showed that Sindh contributes highest revenue to Federal treasury but gets back lowest percentage in comparison to other provinces.
Contribution of the Provinces in the Divisible Pool
(Rs in billion)
1997-98 % 1998-99 % 1999-2000 %
Sindh 169 b 67.5 171 b 64.2 189.461 63.7
Punjab 57.63 23% 65.32 24.5 77.912 26.21
NWFP 16.746 6.7% 21.602 8.1 22.046 7.42
Baloch 7.134 2.8% 8.323 3.1 7.800 2.62
(Source: Combined Finance and Revenue Accounts, Government of Pakistan)
Sindh’s share in taxes
Direct Taxes 67.75%
Income Tax 86.40
Wealth Tax 63.21
Capital gain Tax 32.60
Workers Welfare Fund 45.53
Indirect Taxes 68.32%
Customs 83.75%
Sales Tax 62.10
Federal Excise duty 39.40
(Source: Planning and Development Department GOS)
Sindh’s share in natural Resources % of total in Pakistan
Gas 48%
Electricity 39%
Petrol 62%
Coal 31%
Social Indicators in Sindh
• out of every 10 children born dies before his/her first birthday
• 1 out of every 9 children dies before reaching five years.
• Every 20 minutes 1 women dies due to pregnancy and childbirth complications.
• 4 out of 7 children are mal- nourished.
• 3 out of every 5 children are aged 5 to 9 are not in school.
• 4 children drop out of school every 6 minutes.
• 1 in 5 persons does not have access to safe drinking water.
• 1 out 3 persons does not have access to proper sanitation.
Formula of Sharing Revenue between Federation and Provinces
NFC 1990 NFC 1997
Federal share 20:00 62.50
Provincial Share 80.00 37.50
Total 100:00 100:00
Share given to provinces from the Federal Divisible Pool
(NFC based on 1981 population and on 1998 population)
Province 1981 1998
Punjab 57.88 57.38
Sindh 23.28 23.72
NWFP 13.54 13.82
Balochistan 5.30 5.07
Province-wise Contribution in Divisible Pool and Redistribution
1997-98, 1998-99, 1999-2000 Three years combined (Rs in billion)
Province Contribution Received %
Sindh Rs 530 billion Rs 77.38 14.5
[Above figures shows that Sindh contributed Rs 530 billion between 1997-2000 and received only Rs 77.38 billion during 1997-2000 … that comes to 14.5 percent of what Sindh contributed. Thus, Federal government kept Rs 452.62 billion (530 - 77.38) from contribution of Sindh to National revenue for Federal expenses].
Punjab Rs.201 billion Rs 187 92.9
NWFP Rs.60.5 Rs.49.5 81
Balochistan Rs.23.2 Rs.17.1 73
Cash Development Loan (CDL)
Sindh Govt borrowed Rs 52.8 billion (1972-73 to June 2003), as CDL from the federal government out of which
• Principal paid Rs.9.3 billion
• Interest paid Rs 72.8 billion
• Total paid Rs 82 billion
• Outstanding remaining Rs 43.5 billion
[Above figures shows that Sindh borrowed Rs 52.8 billion from federal government and after paying 82 billion, 43.5 billion of that borrowed money is still outstanding, as Federal government charged 72.8 billion of that 82 billion as interest]
Mr. Sikandar Birohi made following recommendations
• Revenue sharing among the provinces under NFC Award should be on the multiple criteria of revenue collection, fiscal efforts, backwardness and special needs.
• Loans against provincial governments should be written off or be converted into grants for development purposes.
• Proper sharing of foreign loans/grants among the provinces/areas on the basis of genuine needs.
• Transparency and equality in Public Sector Development Program (PSDP) projects/allocations.
• Sharing of transfers between the federation and provinces should be 40:60 basis
• Rationalization in the Federal expenditures through genuine decentralization process.
• Federal government should vacant tax bases falling under the purview of provincial governments.
• Proper royalty on the natural resources to the provinces.
Director of Collective for Social Research, Dr. Asad Saeed, Economist, said that **one should not forget that federating units have created federal structure and government; weakened federal units will not be in the interest of federation. All the financial resources basically origin in the provinces, therefore resources essentially belong to the provinces. **Constitution provides mechanism for distribution of resources a constitutional guarantee to negotiate the formula for the distribution after every five years.
He pointed out that provinces are repaying high interest cash development loans to federal government, which is leaving little fiscal space for the provinces to spend on social sector. Around 80% provincial budget goes to social services but huge administrative expenditure eats away the meager resources.
Haji M. Adeel, Vice President of Awami National Party (Former finance minister of NWFP) told to conference that as long as he was finance minister NFC meeting was never called, that shows that central government is least interested in the just distribution of resources, our provinces lacks infrastructure to make use of one MAF water share from the Indus, we have no irrigation system, canals to utilize that water, given to our province under 1991 Water Accords, resultantly Punjab is exploiting our water share without paying us any compensation. NWFP is starved of development funds, over 49% population lives below the poverty line despite the fact that NWFP for decades produced close to 70% power needs of the country but in return got nothing from the federal governments.
He said it is somehow 1991 NFC Award which gave sizeable net profit share of power generation to NWFP, though it was still less as we know WAPDA earns more than Rs. 20 billion annually but pays just Rs 6 billion to NWFP.
In central’s government’s allocations in development sector Frontier is ignored, private and public sector investment in NWFP has decline, hardly 3.3% of total public and private loans reaches in NWFP, the inflow of money has not increased in our province.
He **fully supported the Sindh and Balochistan’s stand on NFC issue and pledging to struggle in alliance with these provinces from Centre’s highhandedness. **
He informed opposition leader in Sindh Assembly that while you keep opposing Kalabagh Dam (KBD), Central government is working on to establish another dam, Akhori dam, its feasibility reports have been completed and any time Gen. Musharraf would announce its construction. He said that the Akhori dam has the same capacity like KBD it’s a carry over dam and its cost is estimated to be much lower than KBD, and will produce 600 MW electricity.
Mr. Siddiqul Farooq, Central Information Secretary PML-N, said that Pakistan Muslim League Nawaz Sharif group does not support distribution of resources only on population, other factors including backwardness and poverty should be included. He also supported change of ratio in the vertical distribution that is between federal government and provinces. Provinces share should be increased from current 37% to 60% and Federal share should be reduced from existing 80% to 40%.
[FONT=‘Verdana’,‘sans-serif’]He rejected the impression that it is big province Punjab that exploits small provinces; he told the audience that army does not come from whole of Punjab; it comes from hardly four districts of Attock, Rawal Pindi, Chakwal and Gujrat. Common men suffers in the every corner of the country, the plight of Okara peasants is not hidden to any one who have been struggling against army’s hold over colonial lands irrigated by these peasants for decades.
On recent announcement of Chief Ministers of the provinces that they have given their powers to President Gen. Pervez Musharraf to announce an equitable NFC distribution, he said General Musharraf does not have powers to do that neither chief ministers have any legal power to empower him.
[FONT=‘Verdana’,‘sans-serif’]He said that no major party in the country now wants central government to keep more ministries with it other than 4, that is the Defence, Communication, Foreign Ministry and Currency, rest of the ministries and departments should be given to provinces so that maximum provincial autonomy is given to them. He insisted that in order to establish a functional federal structure of the government provinces should have sense of participation.
He demanded that
• debts and loans of the provinces should immediately be written off
• 6 of the resources from the divisible should go to provinces
• And at least government can save Rs 750 billion annually from tax evasion, corruption in various government departments, inefficiency etc, that amount should equally distributed among provinces.
The last speaker of the seminar, Mr. Nisar Ahmad Khuhro of the PPP (Parliamentarians) the leader of opposition in Sindh Assembly, said that Assemblies have no more power, rulers do not pay heed to resolutions of the assemblies, our Sindh Assembly’s one resolution, before partition, created Pakistan, but its current resolutions are not taken into account by the military government in Pakistan. We unanimously rejected Kalabagh Dam, Greater Thal Canal but Government does not listen, Sindh Assembly passed resolution calling for change of the formula of NFC but no one at power corridors bothers to listen it.
Mr. Khuhro said that all talk about provincial autonomy is meaningless without giving financial powers to provinces. Expressing his disappointment, he said present regime of General Musharraf does not listen to voices of opposition, talking to these rulers is like talking to dead ears. But it is democratic right to keep talking and struggling for the just cause.
Mr. Khuhro was even critical of 1991 Water Accord which according to him was too hasty decision, it was not debated properly, different point views and interests of provinces were not dually taken into account before announcing the accord.
He said delay in the announcement of the award is depriving Sindh every year more than of Rs 32 billion consequently for last two years there are no funds for Sindh’s Annual Development Program (ADP).
(Mr. Nisar A. Birohi, Chairman Participatory Development Initiative presented the welcome speech. MPA, journalists, diplomats and civil society activists attend the seminar)
PLEASE PLEASE DO!!! Jab gawadar or karachi ka port nahin mille ga free main to phir pochon ga ke saari phanne khani! Why do you think none of two cent lota elite of punjab doesn’t want to separate from Pakistan???
