ISLAMABAD   -  The share of revenue transfer to the provinces under the National Finance Commission (NFC) Award has been reduced by Rs153 billion following the reduction in tax collection target of the Federal Board of Revenue.

The federal government has projected to transfer Rs2721 billion to the four provinces in ongoing financial year as against Rs2874 billion, which was estimated at the time of annual budget. However, the government has revised downwards the provinces shares after FBR’s tax collection has reduced. Pakistan had agreed with the International Monetary Fund (IMF) to downward revised the tax collection target by Rs272 billion to Rs4691 billion.

In annual budget, the federal government had projected to transfer Rs2873.72 billion to the four provinces under the National Finance Commission (NFC) Award in the budget for the fiscal year 2020-2021. The amount to be transferred to the provinces would depend on the FBR performance to achieve its collection target of Rs4.963 trillion in the fiscal year 2020-21. The provincial governments get shares from the federal government under the NFC Award as per the said formula. Punjab gets 51.74 per cent, Sindh 24.55 per cent, Khyber-Pakhtunkhwa 14.62 per cent and Balochistan 9.09 per cent share.

According to the data of Ministry of Finance, the federal government has already transferred Rs1280.1 billion to the four provinces under the NFC award in first half (July to December) of the current fiscal year. The federal government has transferred Rs621.7 billion to Punjab in the first half of this FY21. The federal government has transferred Rs319.9 billion to Sindh during July-December period of the ongoing financial year. According to the documents, KP has received Rs205.1 billion from the federal government. Meanwhile, Balochistan has also received Rs133.3 billion from the federal government under the NFC Award in the first half of the current fiscal year.

It is worth mentioning here that the five-year constitutional term of the financial arrangement, NFC, had expired on June 30, 2015. However, the Pakistan Muslim League-Nawaz government had paid no heed to the demand of the provinces for formulating a fresh revenue sharing formula. The incumbent government had recently reconstituted the NFC, but it could hold only one meeting so far.

The federal government has termed the revenue transfer to provinces as major fiscal challenge. “The major fiscal challenge being faced by the federal government since introduction of the 18th constitutional amendment and 7th NFC award is transfer of 57.5% of divisible pool taxes and the straight transfers to the provinces, constituting almost 59.7 % of the gross federal revenues, which leaves very limited fiscal space for current and development spending,” the ministry of finance stated in Medium Term Budget Strategy Paper (MTBSP) 2021-22—2023-24. It further added that in order to attain the projected overall fiscal balance, the provinces will be required to have the desired levels of provincial surpluses by increasing their own revenues and rationalizing the expenditures.