This year, after much negotiation, the federal government had decided in June that it would transfer Rs2873.72 billion to the four provinces under the National Finance Commission (NFC) Award in the budget for the fiscal year 2020-2120. This was an increase of the provinces’ share by 19.63 per cent, as an upgrade against the revised Rs2402.08 billion previously decided.
The amount to be transferred to the provinces depends on the Federal Board of Revenue’s performance to achieve its collection target. As this financial year draws on, it was thought that the FBR would not reach its target due to a host of factors—revenue generation and the collection of taxes and duties by all agencies had fallen short of targets due to COVID-19 during the third quarter of FY20 and it was thought this would reflect in the provinces’ share in the divisible pool. The good news on that front is that the government has exceeded expectations and met the tax collection target. This is a good development, yet has unexpectedly not helped matters at all. Why? Even with the tax collection targets met, the federal government has not transferred the full share to provinces. The government has so far transferred Rs503.98b to the four provinces, which is only 17.5pc of the annual share of Rs2873.72b.
With record tax collection, there is absolutely no excuse for the government to not have transferred the full share to the provinces. Rather it raises further questions as to where exactly the additional funds are now going to, if not their intended allocation.
The NFC award is already badly managed—it is not intended as a permanent financial arrangement for revenue allocation for the provinces. Instead of constituting a new formula, governments have slacked off by relying on the old one. Yet even an inefficient revenue allocation method needs to be adhered to, and it is unfortunate that the government is mismanaging its responsibility of transferring full shares.