Fair share and national integration
Any partnership is based on the premise that profit or loss should be shared in a fair manner, this is an equation between the investment and the labour one puts into the working of a partnership. The ratio can be based on the concept of investment only or labour only or a combination of both, an equitable formula has to be worked. Weightage has to be given for hard work and enterprise, silent partners have to settle for less. Partners who neither invest capital or hard work cannot expect to have a lifelong annuity. Essentially, nationhood is a partnership between the federating partners, the scale of division of revenues can be worked out from the population or the size and/or the area and/or the revenues earned (and collected) for the Federal treasury, an effective arrangement has to be devised to ensure that each partner remains reasonably satisfied that a due share is being apportioned. Needless to say any partnership involves a give-and-take arrangement, in a federation everyone has to sacrifice something for the sake of the common national good.
Till 1971, then East Pakistan constantly raised the issue of sharing of the revenues of the Government of Pakistan (GoP) on the basis of population, East Pakistan 56%, West Pakistan 44%. The Federal Government argued that due weightage should also be given to (1) collection of revenues (2) peculiarities of each Province and (3) special emphasis on eradicating rural backwardness. Once East Pakistan was separated from the Federation, the Federal Government reverted to divisibility of revenues on the pure population formula, thus apportioning (approximately) for Punjab 58%, Sindh 23%, NWFP 14% and Balochistan 5%, based on the 1981 Census. Imbalances in the apportioning of revenues has led the smaller Provinces to militate against Punjab, the largest recipient in the prevalent concept of sharing. This perception of lack of equitable sharing has caused understandable frustrations, threatening the existence of the Federation. Our leaders have responded to this increasing erosion of national integrity by simply avoiding the holding of any meetings for over a decade to resolve the issue, the premise being that the failure to arrive at consensus would further exacerbate the situation. National Finance Commission (NFC), a suitable device for periodic consensus that the Constitution has devised and entrusted with the task of making recommendations in respect of distribution of revenues between the Federation and the Federating units, became a bugbear confined to the cold storage. Article 160 of the Constitution specifies that NFC is required to be constituted by the President every five years composing of the Federal Finance Minister, the Provincial Finance Ministers and such other persons as may be appointed by the President after consultation with the Governors of the Provinces. The NFC charter involves recommending to the President (1) the distribution of the net proceeds of taxes under the authority of Parliament on (a) income including Corporation tax but not including taxes on income consisting of remunerations paid out of the Federal Consolidated Fund (b) sales and purchases of goods imported, exported, produced, manufactured or consumed (c) on cotton as export duties and duties on such other exports as may be specified by the President (d) excise duties and such other taxes as may be specified by the President. The NFC shall recommend to the President (2) the share to be allocated and paid to each Province, that share, notwithstanding article 78 of the Constitution is not to form part of the Federal Consolidated Fund, being (3) laid before the Senate, National and (4) all Provincial Assemblies, though the President is authorised to (a) make amendments, modifications in the laws relating to the distribution of revenues as he may deem necessary and (b) make Grants-in-aid to the Provinces in need of assistance, such grants being charged to the Federal Consolidated Fund. Article 161 further specified that notwithstanding the premises of Article 78, the net proceeds of the Federal duty of excise on natural gas as well as the royalty 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 natural gas is situated.
The present divisible pool comprises of taxes on (1) income (2) sales and purchases and (3) export duties on raw cotton, while distribution of the divisible pool is on the basis of population, present ratios being according to 1981 census which is (1) Punjab 57.97% (2) Sindh 23.34% (3) NWFP 13.39% and Balochistan 5.30%. Subvention is given to Frontier amounting to Rs.100 million a year and Balochistan Rs.50 million a year. The present apportioning arrangement being basically unfair, the smaller Provinces have become more vocal about the inadequacies thereof, being frustrated at the denial of what they perceive to be their legitimate right instead of the Federal largesse. Unfortunately the decline in fortunes of the smaller Provinces began approximately a couple of years after the onset of Martial Law in 1977, this force-multiplied the resentment. For purposes of Case-study, Sindh Province’s fortunes, declining since 1980-81, may be taken into analysis. Formerly a surplus Province, Sindh went into deficit in 1981, the present deficit level being Rs.4.3 billion, contributory factors being decreases in receipts as well as increases in expenditures. The reasons for declining receipts are (1) Prohibition Laws promulgated in 1977 resulted in a loss of Rs 65 million (2) reduction in Court fee due to exemption of all Criminal and Civil litigation of cases upto Rs.25,000 lost Rs 28 million (3) Levy of capital value tax by Federal Government has adversely affected stamp duties has lost Sindh Rs 150 million (4) abolition of gift tax in 1985 reduced revenues by Rs.6.6 million and (5) the reduction in receipts from the divisible pool. The increases in expenditures are because of (1) introduction of pay scales and indexation (2) employment of doctors and engineers (3) upgradation of police personnel and doctors (4) the outlays for the Five Point Programme (5) nationalisation of schools and colleges and (6) introduction of mosque schools programme. Major contributory factors which are peculiar to Sindh Province are (1) high level of urbanisation (2) rampant influx of population (3) vast arid zones (4) overall backwardness, particularly Sindh’s rural areas (5) waterlogging and salinity and (6) the abominable law and order situation.
The deficits are likely to grow. Sindh Government sources have confirmed that if their expenditures were to grow at the rate of 12.5% with 1987-88 as BASE YEAR, the projected deficit in 1990-91 will be 12,848 million rupees, this would grow to Rs.14,555 million in 1991-92 and so on till in 1995-96 the deficits reach Rs.23,896 million. At 13.50% rate of increase in expenditures it becomes even worse. No entity can afford to live with these awesome deficits, the net adverse effect will fall on the minimum socio-economic services the people expect the Government to offer. The Provincial Governments have thus reached the agitation stage in trying to acquire minimum resources by an equitable distribution formula to be devised by the NFC.
Some of the ideas to replace the present formula of population basis sharing are that (1) Sales taxes should be allowed 100% to the Provinces (2) divisible pool should include excise duties as cement, beverages and textiles (3) the projected population increase uptill 1991 should be reflected in the revenue sharing. Due weightage in this formula should be given to collection and to urbanisation. Two alternatives are possible, Plan A calling for sharing 50% each on population and collection of revenue basis, Plan B could have as a basis 50% on population, 40% on collection of revenues with 10% on urbanisation (inclusion of this facet is to cater for the special conditions peculiar to urban areas like Karachi). The country’s population is increasing at 3%, Karachi’s is increasing at 6%, mainly due to influx of immigrants from various adjacent countries as well as from up-country.
Development surcharge on gas should be assigned to the Provinces on the same analogy as excise duties and royalty. The Province of Sindh would stand to gain almost Rs.4,438.1 million additional from this. Since Sindh is producing 57% of the country’s oil and two of the four refineries are located in Sindh, oil revenues (excise duties on crude oil and petroleum), royalty and development surcharge should also be allocated to the Provinces. The grants-in-aid for roads, urban transport and law and order should be continued. The arterial roads through Sindh are of strategic value, of utmost importance to the Federation is that the Sindh law and order situation is tackled by increases in police personnel, enhanced training and adequate equipment, the grant must not be less than Rs.1,000 million. The Cash development loans into grants should be converted, the existing debt written off, excluding of course the foreign loans.
The meeting of the NFC is a great step forward in national integration. While the largest Provinces should show due magnanimity, the smaller Provinces should share the sacrifice for the greater good of the country. The first meeting made some progress, it is upto the Federal Finance Minister and his Provincial colleagues to forever bury the spectre of Provincialism by evolving of a fair formula for revenue sharing that will assuage the feelings of the people of each Province.
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