The finance adviser of the Khyber-Pakhtunkhwa government stated on Wednesday that the federal government had requested a reduction of Rs1.7 trillion in provincial shares under the National Finance Commission (NFC) Award, along with contributions to fertilizer subsidies and higher tax collection by provinces.
Federal demand for NFC review
Muzammil Aslam, Finance Adviser to the K-P Chief Minister, said during a press conference in Islamabad, "The federation is not happy with its 42.5% share and has asked to review the NFC Award to take out Rs1.7 trillion from the federal divisible pool." He revealed that in a meeting chaired by Finance Minister Muhammad Aurangzeb a few months ago, the Centre demanded the exclusion of customs duty and federal excise duty from the pool of taxes and revenues shared between the federal and provincial governments. However, no consensus was reached, and the meeting ended inconclusively. Currently, provinces receive 57.5% of the pool, while the federal government gets the remainder.
Budget delay linked to resource distribution
The finance adviser's press conference came a day after a story in The Express Tribune suggested that one reason for the delay in announcing the new budget was the lack of consensus on resource distribution and expenditure allocations among coalition partners. The federal government reportedly sought an additional fiscal space of Rs1.7 trillion from the four provinces, mainly Punjab and Sindh, through NFC Award adjustments and expenditure transfers. Aslam disclosed that the Centre demanded Rs200 billion from Khyber-Pakhtunkhwa, Rs700-800 billion from Punjab, Rs500 billion from Sindh, and about Rs100 billion from Balochistan.
Provincial share and FBR shortfall
For the current fiscal year, a total share of Rs8.2 trillion was determined for provinces based on Rs14.13 trillion in tax collection by the Federal Board of Revenue (FBR). However, the FBR is expected to face a shortfall of over Rs1 trillion for the second consecutive year. The provincial share was estimated from revenues including income tax, wealth tax, capital value tax, sales tax on goods, customs duty, export duty on cotton, and federal excise duty.
Postponed budget and coalition negotiations
Due to the lack of consensus on resource distribution, the government postponed the budget that was planned for announcement this Friday. Delegations from the Pakistan Peoples Party and the Pakistan Muslim League-Nawaz met again on Wednesday to resolve differences. The National Economic Council (NEC) meeting, scheduled for Wednesday to approve the new fiscal year's development budget and macroeconomic targets, was also postponed.
Additional taxes and subsidy demands
Aslam said the finance ministry could not prepare the budget within its fiscal space and asked provinces to contribute to fertilizer subsidies and impose additional taxes of Rs430 billion. Finance Minister Aurangzeb requested the four provinces to impose Rs430 billion in extra taxes, but all provinces stated they lacked the capacity. The finance minister asked K-P to impose Rs35 billion in additional taxes, but later a letter demanded Rs65 billion, which K-P rejected. The federal government also demanded Rs2 billion from K-P and Rs55 billion from Punjab for fertilizer subsidies.
Complaints about development budget allocation
Aslam complained about neglecting K-P in development budget allocation. Out of the Rs1.126 trillion federal development budget, only Rs2.2 billion was allocated for K-P projects, compared to Rs225 billion for Balochistan and Rs150 billion for Sindh. He emphasized a trust deficit between the finance ministry and the IMF, leading to rejection of even genuine proposals. He urged the IMF to view K-P and Balochistan differently due to limited growth avenues and severe impact from terrorism.
Provincial budget approval process
K-P Information Minister Shafiullah Jan said the chief minister had filed a petition seeking a meeting with PTI founder Imran Khan for finalization of the budget. He hoped the meeting would be approved; otherwise, the senior party leadership would decide.
