Share of provinces has increased by Rs960 billion due to federal government’s decision of enhancing tax collection target for FBR

ISLAMABAD    -   The federal government has upward revised the provinces share from the divisible pool after changing tax collection target of the Federal Board of Revenue (FBR) for the current fiscal year.

The federal government in annual budget 2022-23 has kept tax collection target at Rs7.004 trillion for the FBR for the ongoing financial year. However, later, on the directions of the International Monetary Fund (IMF), the government has upward revised the tax collection target of the FBR to Rs7.450 trillion for the ongoing fiscal year. Now, the government has upward revised the share of provinces under National Finance Commission (NFC) award. Under the constitution, the federal government is bound to transfer 57.5 percent of its revenue to the provinces under NFC award. The four provinces would receive Rs4.372 trillion from the centre under National Finance Commission (NFC) award in current financial year as against Rs3.411 trillion of the last fiscal year, showing an increase of 28 percent. The share of provinces has increased by Rs960 billion due to the federal government’s decision of enhancing tax collection target for Federal Board of Revenue (FBR). The government has now set Rs7.450 trillion tax collection target. The amount to be transferred to the provinces would depend on the Federal Board of Revenue’s performance to achieve its collection target of Rs7.450 trillion in the fiscal year 2022-23.

The government has enhanced the share of the provinces under NFC award, but it has also asked them to give surplus budget of Rs750 billion to restrict its budget deficit at Rs3.798 trillion or 4.9 percent of the GDP. Under the 7th NFC Award, the Federal Divisible Pool was distributed as 57.5 percent share for the provinces and the remaining for centre. The provincial governments get shares from the federal government under NFC award as per the said formula. Punjab gets 51.74 percent, Sindh 24.55 percent, Khyber-Pakhtunkhwa 14.62 percent and Balochistan 9.09 percent. According to the documents, the federal government would transfer Rs2.167 trillion to Punjab in the next fiscal year against Rs1.691 trillion of the current fiscal year. Sindh will receive Rs1.097 trillion in the FY2022-23 as compared to Rs848.21 billion of the outgoing year. Khyber-Pakhtunkhwa will receive Rs713.5 billion as against Rs559.26 billion in the ongoing year. KP would get one per cent under the war on terror. The federal government would transfer Rs394.1 billion to Balochistan in next fiscal year as compared to Rs313.296 billion of the last year.

The break-up of Rs4.372 trillion, which would be transferred to the provinces, showed that Rs4.247 trillion would be transferred from the divisible pool, which was Rs3.31 trillion in the outgoing year. Meanwhile, the federal government would transfer Rs125 billion as straight transfers during the next financial year that was Rs101.37 billion in the outgoing year. The break-up of divisible pool taxes showed that Rs1.722 trillion would be collected as income tax, Rs295 million capital value tax, Rs1.761 trillion sales tax on goods, Rs223.6 billion federal excise duty and Rs539.4 billion customs duty in the fiscal year 2022-23.

Similarly, the breakup of straight transfers showed that Rs19.6 billion would be accumulated as gas development surcharge, Rs61.118 billion as royalty on natural gas, Rs32.416 billion as royalty on crude oil, Rs12.311 billion as excise duty on natural gas. The five-year constitutional term of the 7th NFC award expired on June 30, 2015. Since then, the federal government is continuously extending the seventh award after failing to constitute the new NFC Award. Previous government of PML-N and the incumbent PTI government both failed to formulate the fresh resource sharing formula between federal govt and the provinces.