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NFC Sindh Case Historical and Constitutional Analysis

NFC Sindh Case Historical and Constitutional Analysis

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NFC Sindh Case Historical and Constitutional Analysis

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  1. NFC Sindh CaseHistorical and Constitutional Analysis Barrister Zamir Ghumro Sindh Dost Rabita Council Karachi: November 14, 2009

  2. Back Ground: 1935 to 1947 • Government of India Act 1935 • Sindh declared province on 1st April 1936 • Financial Relations Between the Federation and Provinces

  3. Government of India Act 1935 • Sales Tax completely handed over to the provinces under the Act. • Terminal taxes on goods, stamp duty and succession duty recovered by the centre but returned back in the account of provinces. • Centre shared certain percentage of Income tax with each province. • 50% Excise duty on Jute directly handed over to the province of Bengal.

  4. SEPARATE ACCOUNTS OF THE PROVINCES • Under this constitutional Scheme separate accounts of the provinces were maintained. • This arrangement was based on limited devolution. • Centre and provinces had their own authority of taxation. • It ensured fiscal space for the provinces to certain extent

  5. GRANTS TO THE PROVINCES • This arrangement contained a provision for Grants to finance deficient provinces. • Sindh received 1.1 million Rupees and NWFP 1 million as grant before partition.

  6. PERIOD: 1947 TO 1955 • Sir Jermy Raisman appointed by Pakistan Government to give financial award in 1947 • Karachi declared Federal territory on 2nd July 1948. • Sindh mourns this great loss. • 50% Sales Tax usurped by the centre in 1948 on the pretext of refugee onslaught for two years. • Period of two years expired in 1950 but again it was extended to 1952 and subsequently never returned back.

  7. RAISMAN AWARD OF 1951 • 50% Sales Tax be handed over to the provinces. • 50% Income tax be handed over to the provinces. • Bengal resents handing over of customs duty to the centre.

  8. ESTABLISHMENT OF WEST PAKISTAN----ONE UNIT • Sindh’s provincial status abolished in 1955. • West Pakistan becomes one province. • Sindh’s account contains 33 crores which, at present, are equivalent to Rs.300 billion. • Lahore usurps this huge amount. • There were financial causes of One Unit. Lahore needed Sindh’s resources, lands. • Sindh made political orphan. Wages valiant struggle against One Unit.

  9. CONSTITUTIONS OF 1956 AND 1962 • Under one unit both the constitutions carried the provision of NFC (National Finance Commission) • No award comes under 1956 constitution. • 50% Income tax withdrawn from the provinces given under Raisman award. • Two awards announced in 1962 and 1965. • Sales Tax federalized in both constitutions.

  10. NFC AWARDS OF 1962 AND 1965 • Separate account of Sales tax maintained for the provinces. • 30% share surrendered back to the provinces on the basis of recovery from each province. • In other taxes 54% and 45% specified share fixed for East and West Pakistan respectively. • Population finds no mention.

  11. WEST PAKISTAN PROVINCE ABOLISHED IN 1970 • Sindh declared separate province. • However, it remains in administrative and financial bondage. • In 1970 for the first time all taxes except Sales Tax among West Pakistan provinces distributed on population basis. • Punjab main beneficiary of this scheme.

  12. 1973 CONSTITUTION AND FINANCIAL ARRANGEMENT • NATIONAL FINANCE COMMISSION (NFC) provision in 1956 and 1962 and 1973 constitutions is same but NFC oversteps its constitutional mandate. • Sales Tax Federalized. • No major tax given to the provinces.

  13. ARTICLE 160 OF THE CONSTITUTION National Finance Commission- (1) Within six months of the commencing day and thereafter at intervals not exceeding five years, the President shall constitute a National Finance Commission consisting of the Minister of Finance of the Federal government, the Ministers of Finance of the provincial governments, and such other persons as may be appointed by the President in consultation with the Governors of the provinces.

  14. ARTICLE 160 OF THE CONSTITUTION(Continued) (2) It shall be the duty of the National Finance Commission to 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.

  15. ARTICLE 160 OF THE CONSTITUTION(Continued) (3) taxes referred to in paragraph (a) are following taxes raised 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.

  16. ARTICLE 160 OF THE CONSTITUTION(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 under paragraph (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.

  17. ARTICLE 160 OF THE CONSTITUTION(Continued) (5) The recommendations of the National Finance Commission, 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.

  18. JUST AND EQITABLE DISTRIBUTION FORMULA • NFC has only to develop just and equitable formula. • First NFC recommendations in 1974 break the back of Sindh. • NFC is not mandated to carry out any economic exercise. • It never carried such exercise under same arrangement in 1965 or 1962 constitutions. • It has changed the meaning of this article.

  19. PRESENT ARAANGEMENT OF DISTRIBUTION • At present centre takes away 53% on the basis of revenue at source. • 47% taxes not returned back to provinces as per recovery. • They are again distributed on population basis. • Distribution among the provinces not envisaged in the constitution.

  20. PRESENT VOLUME OF TAXES:THIS YEARS TARGET FIGURES • Income tax Rs. 580 billion, sale tax Rs 510 billion, Customs duty 165 billion and excise duty 160 billion. • total tax revenue Rs 1415 billion. • More than 2/3rd 1000 billion recovered from Sindh. • Real volume of Revenue is more than Rs. 3000 billion from Sindh. • Businessman and tax collector from Punjab are in cahoots. • They engage in widespread corruption and tax evasion.

  21. DISTRIBUTION THIS YEAR AND SINDH’S SHARE • out of 1415 billion, centre will retain around Rs. 750 billion. • Remaining Rs.665 billion will not be returned to the provinces as per law. • This amount will be distributed among provinces on population basis or so called multifactor formula. • As per old census, Sindh gets 23% of this amount. • Sindh to be given around 150 billion out of its total recovery of 1000 billion • Each year federal governments applies cuts on different pretexts. • In fact, it will come down even more and expected is 130 billion.

  22. OUR STAND AS PER PRESENT ARRANGEMENT • Centre must maintain separate tax accounts of each province. • It should retain its share of only 20% on population basis from the account of each province. • It means centre should get around 280 billion. • Sindh surrenders from its accounts of Rs. 1000 billion only 64 billion as per its population of 23% • It gets back remaining Rs 936 billion.

  23. REASONS FOR THIS JUST DISTRIBUTION FORMULA. • Centre has no developmental responsibility except communication. • It keeps around 600 billion non-tax revenue. • Each province has representation in the centre according to population. • Every province should contribute as per population. • Punjab should contribute at least 55% from its accounts though its share in Federal services is more than 75%. • Single account of the taxes amounts to one unit.

  24. SINDH ASSEMBLY’S UNANIMOUS RESOLUTION OF 2003 • Separate tax account of each province. • Centre must deduct its share as per population • Return the rest of money to the provinces. • No horizontal distribution ( distribution among the provinces)

  25. OUR STAND:SINDH ASSEMBLY’S RESOLUTION AND CONSTITUTION • No conflict in our stand, Sindh Assembly’s resolution and article 160 of the constitution. • Article 160 mentions only distribution between the Federation and each province. • No distribution among the provinces allowed.

  26. SINDH GOVERNMENT’S STAND • Centre should keep money without any basis. • No separate accounts demanded. • After centre’s share, money should be distributed among provinces. • Complete violation of the constitution, Sindh Assembly resolution.

  27. PPP’S 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 Sindh’s financial sovereignty to Punjab.

  28. 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 is being run on Sindh’s money.

  29. NFC DECISION MAKING:CONSENSUS OR MAJORITY VIEW • PPP’s Finance Minister Dr MubasharHaasan had promised in National Assembly that decisions in NFC will be take on the pattern of Council of Common Interests. • Council takes decisions by majority vote. • NFC all along follows the mantra of consensus. • consensus, award, population, divisible pool not mentioned in constitution.

  30. NON ISSUES IN NFC:SINDH GOVERNMENT TRAPPED • GST on services is purely a provincial subject. • CM and Bengali’s contradictory statements. • CM says we will get 25 billion • MR. Qaisar Bengali says we will get 18 billion.

  31. HOW MUCH SINDH WILL GET IN GST? • Sindh already getting 8 billion as per past distribution. • out of total 25 billion, addition will be 17 billion. • It has not decided to collect this tax.

  32. GAS DEVELOPMENT SURCHARGE (GDS) AND HYDRO-ELECTRIC PROFITS • It is not the issue of NFC as GDS comes under the purview of CCI • Sindh suffers huge losses. • Sindh’s well head rates are higher than other provinces. • Reason is that gas discovery is new. • They have been equalized with all provinces! • Balochistan’s gas consumed by Punjab and NWFP. • Sindh government surrenders on this vital issue. • Hydro electric profits issue between federal government and NWFP

  33. PUNJAB AND FEDERAL GOVERNMENTS PLANNING • Bring as much non issues in NFC as possible • Isolate Sindh. • Take along NWFP and Balochistan. • Insist on consensus. • Use NFC as an economic forum instead of evolving just distribution formula • Sindh Government acts like a brainwashed bird • Goes in the trap with hands off.

  34. INDIAN EXPERIENCE • Sales tax given to the provinces. • Terminal taxes on goods, stamp duty, succession duty recovered by centre given to the provinces back. • Income tax, customs duty and excise duties distributed among provinces by an Independent NFC without government interference. • Population assigned least percentage.

  35. IS NFC ECONOMIC ISSUE? • NFC has to evolve a just and fair distribution formula • Principle for the distribution for Rs. 100 or Rs. 1415 billion is same. • NFC has to decide principle. • It has converted itself into an economic forum. • Inept Sindh Government easily falls in this trap. • Sindh Chief Minister says economic experts better know NFC. • Economist’s job is to apply available funds not invent distribution formula or interpret law and constitution.

  36. CONCLUSION Sindh being cheated and defrauded by NFC due to Sindh Government’s abject surrender of Sindh’s principled stand enshrined in the historic resolution of Sindh Assembly in 2003 and principles of Federalism.

  37. Thanks