KP adviser says NEC cannot change provincial revenue shares as Center seeks 1.2 tr.
ISLAMABAD:
Pakistan’s head of state and government met on Monday to resolve differences over the new budget as Khyber-Pakhtunkhwa’s finance adviser revealed the federation wanted to freeze new provincial shares at this year’s level to retain an additional Rs1.2 trillion.
Muzzammil Aslam, the financial adviser to the KP chief minister, also said that the forum of the National Economic Council (NEC) cannot be used to retain provincial shares and any such move would require legal cover.
The highest-level clash between President Asif Zardari and Prime Minister Shehbaz Sharif took place on the day the government adjourned for the third time the meeting of the NEC – the body mandated to approve development budgets and national macroeconomic frameworks.
The Ministry of Finance also struggled to secure the International Monetary Fund (IMF) nod to the new scheme to retain the provincial shares under the National Finance Commission (NFC) Award by getting the NEC stamp. The finance ministry on Monday considered various options to convince the IMF, including the possibility of a call to the CEO of the global lender.
Prime Minister Shehbaz met President Zardari, whose party rules two provinces, to seek his support to make the new budget viable. The Center aims to withdraw Rs 1.2 trillion from the shares of the provinces under the NFC for the financial year 2026-27.
This has delayed the announcement of the budget and there was extreme uncertainty in the country over lack of clarity on budget dates.
According to a statement issued by the Presidency, Prime Minister Shehbaz met President Zardari along with his team. “The meeting discussed the economy, the budget for the next financial year, the recent elections in Gilgit-Baltistan, the situation in Azad Kashmir, law and order and issues of national importance”, the presidency said.
It added that while discussing the budget proposals and public relief, the president emphasized prioritizing public welfare, provincial rights and economic stability in the federal budget. The President instructed that full efforts be made to adjust the growth rate and the public welfare schemes in the upcoming budget.
The discussions revolved around the Federation’s desire to cut a Rs1.2 trillion pie from the shares of the four provinces to cover expenditure on strategic nature initiatives and provide tax breaks that are not possible within the limited federal fiscal space.
While addressing a press conference after the meeting with the federal government, Muzzammil Aslam, financial adviser to the KP chief minister, said there was extreme uncertainty in the government over the next year’s budget.
He said there was no consensus between the provinces and the center on the Rs1.2 trillion deduction and distribution of the federal development budget and between the IMF and the finance ministry on the new budget.
The NEC meeting was adjourned on Monday without giving a reason and we were not sure if it would happen on Tuesday (today),” Aslam said. He added that due to lack of consensus on the Centre’s demand for additional resources, it was not certain that the budget would be announced on June 10.
“Everything is fluid, uncertain and nobody has the clarity,” Aslam said.
He revealed that the federal government has proposed to freeze the provincial shares in the NFC on actual transfers for the year. He said the additional around Rs 1.2 trillion that the four provinces will get in the next financial year due to the increase in federal tax collection is proposed to be retained by the Centre.
For this financial year, the government had indicated Rs8.2 trillion transfers to the provinces. But due to the extremely poor performance of FBR, the four provinces may get Rs 7.5 trillion. Aslam said that for the next financial year, the federal government wanted to freeze the provincial shares at this year’s level by getting the approval of the provinces through the NEC.
To a question, Aslam said that “NEC is not the forum to deduct provincial shares”. The NEC is a constitutional body chaired by the Prime Minister with all provincial chief ministers present. KP’s adviser said it was not clear whether the provincial chief minister would attend the NEC meeting.
He said the Center has demanded that four provinces contribute according to their shares in the NFC, with KP’s share around Rs 180 billion. Initially, the federal government had demanded Rs 1.7 trillion from the provinces, but later revised down the demand.
Punjab’s contribution could be around Rs650 billion, Sindh Rs300 billion, KP Rs180 billion and Balochistan Rs110 billion.
Aslam said the extra money has been required for “some strategic purposes” and former prime minister Imran Khan would not even refuse to contribute. But even if all the provinces agree to give up their additional shares, technically the money cannot be given on the basis of any NEC decision, Aslam said.
He said that Rs1.2 trillion has been demanded beyond the province’s cash surplus and this would turn their budgets into deficit.
The Rs1.2 trillion is almost half of the Rs2.2 trillion worth of revenue shortfall faced by the FBR in two financial years – the poor performance that has now thrown the federal government at the mercy of the provinces and also led to increase in oil tax to Rs116 per liter in petrol.
Government sources said the finance ministry also took up the issue of getting additional resources from the provinces with the IMF through the NEC. They said the IMF was reluctant to accept the mechanism proposed by the NEC to deduct provincial shares. They said the IMF’s approval was important before agreeing to this mechanism.
Government sources said Rs1.2 trillion is being required for defence, financing strategic water projects, providing tax breaks to the corporate sector and reducing withholding tax on real estate transactions. Some of these measures cannot be taken within the federal fiscal realm.
The finance ministry did not respond to questions on whether it was correct that Pakistan has shared its position on seeking Rs1.2 trillion from provinces through the NEC mechanism. The ministry also did not comment on whether the IMF agreed to this arrangement and whether the money demanded from the provinces was only for defense purposes or will also be used to provide tax breaks.
Aslam again complained that his province is marginalized and only Rs2.3 billion has been given out of Rs1.12 trillion next year’s budget. He said the federal allocation under the Accelerated Implementation Program has also been reduced by Rs10 billion to Rs56 billion.
