NFC-Zamir Ghumro

8/3/2019 NFC-Zamir Ghumro

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NFC Sindh CaseHistorical and Constitutional Analysis

Barrister Zamir Ghumro

Sindh Dost Rabita Council

Karachi: November 14, 2009


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Back Ground: 1935 to 1947

a. Government of India Act 1935

b. Sindh declared province on 1st

April 1936

c. Financial Relations Between the

Federation and Provinces


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Government of India Act 1935

a. Sales Tax completely handed over to theprovinces under the Act.

b. Terminal taxes on goods, stamp duty and

succession duty recovered by the centre butreturned back in the account of provinces.

c. Centre shared certain percentage of Income

tax with each province.d. 50% Excise duty on Jute directly handed over

to the province of Bengal.


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SEPARATE ACCOUNTS OF THE PROVINCES

a. Under this constitutional Scheme separate

accounts of the provinces were maintained.

b. This arrangement was based on limited

devolution.

c. Centre and provinces had their own authority

of taxation.

d. It ensured fiscal space for the provinces to

certain extent


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GRANTS TO THE PROVINCES

a. This arrangement contained a

provision for Grants to finance

deficient provinces.b. Sindh received 1.1 million Rupees

and NWFP 1 million as grant before

partition.


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PERIOD: 1947 TO 1955

a. Sir Jermy Raisman appointed by PakistanGovernment to give financial award in 1947

b. Karachi declared Federal territory on 2nd July

1948.c. Sindh mourns this great loss.

d. 50% Sales Tax usurped by the centre in 1948 on

the pretext of refugee onslaught for two years.

e. Period of two years expired in 1950 but again it

was extended to 1952 and subsequently never

returned back.


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RAISMAN AWARD OF 1951

a. 50% Sales Tax be handed over to the

provinces.

b. 50% Income tax be handed over tothe provinces.

c. Bengal resents handing over ofcustoms duty to the centre.


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ESTABLISHMENT OF WEST PAKISTAN----ONE UNIT

a. Sindhs provincial status abolished in 1955.

b. West Pakistan becomes one province.

c. Sindhs account contains 33 crores which, at

present, are equivalent to Rs.300 billion.d. Lahore usurps this huge amount.

e. There were financial causes of One Unit. Lahore

needed Sindhs resources, lands.f. Sindh made political orphan. Wages valiant struggle

against One Unit.


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CONSTITUTIONS OF 1956 AND 1962

a. Under one unit both the constitutions carriedthe provision of NFC (National Finance

Commission)

b. No award comes under 1956 constitution.

c. 50% Income tax withdrawn from the provinces

given under Raisman award.

d. Two awards announced in 1962 and 1965.

e. Sales Tax federalized in both constitutions.


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NFC AWARDS OF 1962 AND 1965

a. Separate account of Sales tax maintained for

the provinces.

b. 30% share surrendered back to the provinceson the basis of recovery from each province.

c. In other taxes 54% and 45% specified share

fixed for East and West Pakistan respectively.d. Population finds no mention.


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WEST PAKISTAN PROVINCE ABOLISHED IN 1970

a. Sindh declared separate province.

b. However, it remains in administrative and

financial bondage.

c. In 1970 for the first time all taxes except

Sales Tax among West Pakistan provinces

distributed on population basis.

d. Punjab main beneficiary of this scheme.


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1973 CONSTITUTION AND FINANCIAL ARRANGEMENT

a. NATIONAL FINANCE COMMISSION (NFC)

provision in 1956 and 1962 and 1973

constitutions is same but NFC oversteps its

constitutional mandate.

b. Sales Tax Federalized.

c. No major tax given to the provinces.


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ARTICLE 160 OF THE CONSTITUTION

National Finance Commission-

(1) Within six months of the commencing day andthereafter at intervals not exceeding five years,

the President shall constitute a National FinanceCommission consisting of the Minister of Financeof the Federal government, the Ministers ofFinance of the provincial governments, and such

other persons as may be appointed by thePresident in consultation with the Governors ofthe provinces.


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(Continued)

(2) It shall be the duty of the National Finance Commissionto make recommendations to the President as to-

(a) the distribution between the Federation and the

provinces of the net proceeds of the taxes mentioned in

clause (3);

(b) the making of grants-in-aid by the Federal government

to the provincial governments;

(c) the exercise by the Federal government and the

provincial governments of the borrowing powers conferred

by the constitution; and

(d) any other matter relating to finance referred to the

commission by the President.


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(Continued)

(3) taxes referred to in paragraph (a) are following taxesraised under the authority of Parliament namely:-

(i) taxes on income, including corporation tax but not

including taxes on income consisting of remuneration paid

out of the Federal Consolidated fund;

(ii) taxes on the sales and purchases of goods imported,

exported, produced, manufactured or consumed.

(iii) export duties on cotton and such other export duties as

may be specified by the president.

(iv) such other duties as may be specified by the president.

(v) such other taxes as may be specified by the president.


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(Continued)

(4) As soon as may be after receiving the

recommendations of the National Finance Commission,

the president shall, by order, specify, in accordance with

the recommendations of the Commission underparagraph (a) of clause (2), the share of the net proceeds

of the taxes mentioned in clause (3) which is to be

allocated to each province, and that share shall be paid

to the Government of that province concerned, and,notwithstanding the provision of Article 78 shall not

form part of the Federal Consolidated Fund.


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(Continued)(5) The recommendations of the National FinanceCommission, together with an explanatory memorandum as

to the action taken thereon, shall be laid before both houses

and the provincial Assemblies.

(6) At any time before an Order under clause (4) is made,

the president may, by Order, make such amendments or

modifications in the law relating to distribution of revenues

between the Federal Government and the provincial

Governments as he may deem necessary or expedient.

(7) The President may by order, make grants-in-aid of the

revenues of the provinces in need of assistance and such

grants shall be charged upon the Federal Consolidated Fund.


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JUST AND EQITABLE DISTRIBUTION FORMULA

a. NFC has only to develop just and equitable

formula.

b. First NFC recommendations in 1974 breakthe back of Sindh.

c. NFC is not mandated to carry out any

economic exercise.d. It never carried such exercise under same

arrangement in 1965 or 1962 constitutions.

e. It has changed the meaning of this article.


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PRESENT ARAANGEMENT OF DISTRIBUTION

a. At present centre takes away 53% on the basis

of revenue at source.

b. 47% taxes not returned back to provinces as

per recovery.

c. They are again distributed on population basis.

d. Distribution among the provinces not envisaged

in the constitution.


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PRESENT VOLUME OF TAXES:

THIS YEARS TARGET FIGURES

a. Income tax Rs. 580 billion, sale tax Rs 510 billion,

Customs duty 165 billion and excise duty 160 billion.

b. total tax revenue Rs 1415 billion.

c. More than 2/3rd 1000 billion recovered from Sindh.

d. Real volume of Revenue is more than Rs. 3000 billion

from Sindh.

e. Businessman and tax collector from Punjab are incahoots.

f. They engage in widespread corruption and tax evasion.


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DISTRIBUTION THIS YEAR AND SINDHS SHARE

a. out of 1415 billion, centre will retain around Rs. 750billion.

b. Remaining Rs.665 billion will not be returned to theprovinces as per law.

c. This amount will be distributed among provinces onpopulation basis or so called multifactor formula.

d. As per old census, Sindh gets 23% of this amount.

e. Sindh to be given around 150 billion out of its total

recovery of 1000 billionf. Each year federal governments applies cuts ondifferent pretexts.

g. In fact, it will come down even more and expected

is 130 billion.


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OUR STAND AS PER PRESENT ARRANGEMENT

a. Centre must maintain separate tax accounts ofeach province.

b. It should retain its share of only 20% onpopulation basis from the account of eachprovince.

c. It means centre should get around 280 billion.

d. Sindh surrenders from its accounts of Rs. 1000billion only 64 billion as per its population of23%

e. It gets back remaining Rs 936 billion.


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REASONS FOR THIS JUST DISTRIBUTION FORMULA.

a. Centre has no developmental responsibility exceptcommunication.

b. It keeps around 600 billion non-tax revenue.

c. Each province has representation in the centreaccording to population.

d. Every province should contribute as perpopulation.

e. Punjab should contribute at least 55% from itsaccounts though its share in Federal services ismore than 75%.

f. Single account of the taxes amounts to one unit.


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SINDH ASSEMBLYS UNANIMOUS RESOLUTION OF 2003

a. Separate tax account of each province.

b. Centre must deduct its share as per

populationc. Return the rest of money to the

provinces.

d. No horizontal distribution ( distributionamong the provinces)


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OUR STAND:

SINDH ASSEMBLYS RESOLUTION AND CONSTITUTION

a. No conflict in our stand, Sindh

Assemblys resolution and article 160

of the constitution.

b. Article 160 mentions only distribution

between the Federation and each

province.c. No distribution among the provinces

allowed.


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SINDH GOVERNMENTS STAND

Centre should keep money without any

basis.

No separate accounts demanded. After centres share, money should be

distributed among provinces.

Complete violation of the constitution,Sindh Assembly resolution.


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PPPS MANIFESTO AND CHARTER OF DEMOCRACY

Sales tax to be progressively transferred

to provinces.

NFC award to be given in a just manner. Sindh government puts no such demand

in NFC.

Surrenders Sindhs financial sovereignty

to Punjab.


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FEDERAL GOVERNMENTS TAX REVENUE

This year federal government will retain

750 billion.

This whole amount belongs to Sindh. Sindh will get 130 -150 billion out of its

1000 billion.

This means whole Federal government isbeing run on Sindhs money.


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NFC DECISION MAKING:

CONSENSUS OR MAJORITY VIEW

a. PPPs Finance Minister Dr Mubashar Haasanhad promised in National Assembly thatdecisions in NFC will be take on the pattern

of Council of Common Interests.b. Council takes decisions by majority vote.

c. NFC all along follows the mantra of

consensus.d. consensus, award, population, divisible poolnot mentioned in constitution.


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NON ISSUES IN NFC:

SINDH GOVERNMENT TRAPPED

a. GST on services is purely a provincial

subject.

b. CM and Bengalis contradictorystatements.

c. CM says we will get 25 billion

d. MR. Qaisar Bengali says we will get 18billion.


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HOW MUCH SINDH WILL GET IN GST?

Sindh already getting 8 billion as per past

distribution.

out of total 25 billion, addition will be 17billion.

It has not decided to collect this tax.


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GAS DEVELOPMENT SURCHARGE (GDS)

AND HYDRO-ELECTRIC PROFITS

a. It is not the issue of NFC as GDS comes under thepurview of CCI

b. Sindh suffers huge losses.

c. Sindhs well head rates are higher than otherprovinces.

d. Reason is that gas discovery is new.

e. They have been equalized with all provinces!

f. Balochistans gas consumed by Punjab and NWFP.g. Sindh government surrenders on this vital issue.

h. Hydro electric profits issue between federalgovernment and NWFP


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PUNJAB AND FEDERAL GOVERNMENTS PLANNING

a. Bring as much non issues in NFC as possible

b. Isolate Sindh.

c. Take along NWFP and Balochistan.

d. Insist on consensus.

e. Use NFC as an economic forum instead of

evolving just distribution formula

f. Sindh Government acts like a brainwashed bird

g. Goes in the trap with hands off.


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INDIAN EXPERIENCE

a. Sales tax given to the provinces.

b. Terminal taxes on goods, stamp duty,succession duty recovered by centre given to

the provinces back.c. Income tax, customs duty and excise duties

distributed among provinces by anIndependent NFC without governmentinterference.

d. Population assigned least percentage.


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IS NFC ECONOMIC ISSUE?

a. NFC has to evolve a just and fair distributionformula

b. Principle for the distribution for Rs. 100 or Rs. 1415billion is same.

c. NFC has to decide principle.d. It has converted itself into an economic forum.

e. Inept Sindh Government easily falls in this trap.

f. Sindh Chief Minister says economic experts betterknow NFC.

g. Economists job is to apply available funds notinvent distribution formula or interpret law andconstitution.


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CONCLUSION

Sindh being cheated and defrauded by

NFC due to Sindh Governments abject

surrender of Sindhs principled stand

enshrined in the historic resolution of

Sindh Assembly in 2003 and principles of

Federalism.


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Thanks

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NFC-Zamir Ghumro