NFC Award: a matter of debate

KAMRAN AKBER SOOMRO
National Finance Commission (NFC) award is the distribution of share of revenue among the provinces and the federation which is collected from the federating units. It is based on the article 160 of the constitution of Pakistan 1973. In the article it is mentioned that the fair policy must be adopted to allocate the right share of the collected revenue among the provinces. The commission consists of four provincial ministers, headed by federal finance minister and four other members from the four provinces. It is due to reconstruct this award after every five years. NFC award is based on wealth tax, Income Tax, Sales Tax, General Sales Tax, Excise duty etc.
Pakistan is a federal kind of government in which the federal government integrates all the four federating provinces. The federal government has to play an important role to bring harmony and unity among the provinces in favor of the country. At every stage of the governance, it must cooperate and support the provinces. Furthermore, it is the most imperative thing for the federal government to behave equally and evenly with all the provinces without any difference and any biasness of any kind.
Though there is a variety of cultures and people among the provinces, they are bound in the circle of Federation. Their demographic and geographic conditions are very much different, so is the case with their language, living condition, traditions and customs. So, it is most of the times very tough task to find consensus among all provinces on many national issues. So is the case with the Finance Award which has been a matter of debate and criticism for the decades.
There has been absence of consensus among the provinces on the method of Revenue distribution of the divisible pool. Each time the award is announced, it raises various critical issues. Soon after the 1973’s constitution was brought, the announcement of the then financial award based on the premises of Population created conflict among the provinces. Especially the smaller provinces felt being deprived of their due share in the revenue. Punjab, being the most populated province of the country has been receiving greater share of the revenue against its smaller contribution in the revenue generation. Punjab receives more approximately 60% of the Award against contribution of about 30% contribution in the tax collection, while Sindh is able to receive hardly 28% of the Share of award against its contribution of about 70% in the Revenue collection! Sindh provides wide tax collections on Service sector, revenue generation on Port Qasim, natural resources, industrialization and oil and gas!
While Baluchistan receives only about 7% share and NWFP becomes able to have only 5% share of the revenue distribution. Though these provinces also contribute much in the field of natural resources, Dams, mines, oil and Gas!

Moreover, there is also an issue of vertical distribution of Revenue, Federation takes more than 60% of the revenue collected and the remaining is distributed among provinces through divisible pool. Federation must take only such portion of the revenue necessary for funding important fields like defense. And more proportion must be rewarded to the provinces.
It is an old system of financial award to make Population a basis for the revenue distribution. Because, a province that contributes a lot if the revenue generation on account of its active economic and financial performance, but is given an undue share, much lesser than the province that has a smaller contribution, only on the ground of the population!
Sindh government’s stance to ask a change in the NFC award with replacement of the only-criterion of Population with multiple criteria must be honored and accepted. Because, it was possible to take population a decisive base if all the provinces were equal in sense of socio-economic condition. But, the real picture is different. Smaller provinces are already backward in many areas like Literacy rate, social development, employment opportunities, education, health, infrastructure, peace and security etc. Sindh has been crying for decades for the unfair attitude of the federation but has always been neglected. Today, the people of a rich province are poor and leading miserable life! Baluchistan is also burning; people are weary of the federation and are getting against it only due to the chronic step-motherly behavior of the federation. So is the case with NWFP.
Now, the 7th NFC award is under the process, it is important to reconsider the case, hear the suggestions of provinces, restructure the formula and allow fair and proper distribution of the revenue. Multiple criteria like backwardness, poverty, socio-economic condition, contribution and population must be set the grounds for the income distribution. Unlike the past, it’s expected that the current democratic government will keep in mind the actual concept of federation and will equally deal all the provinces. For decades, this critical issue has been the hurdle in the implementation of strong and successful federation. Lack of prudential decision-making has been causing the feelings of disharmony and deprivation among the provinces. It is hoped to see some favorable change in the design of 7th financial award.