What is NFC award

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What is NFC award

  1. 1. What is NFC Award?The NFC award, National Finance Commission award, is the distribution of financial resources among theprovinces of Pakistan by the federal government on annual basis.Taxes are pooled and distributed: Certain types of taxes collected in each province are pooled, thenredistributed according to the NFC formula. What taxes to include in the distribution pool and thedistribution formula is a subject of debate.Taxes included in the pool are (1) income taxes, (2) general sales tax, (3) wealth taxes, (4) capital gainstaxes, and (5) custom duties.Most Tax Receipts are collected from Punjab and Sindh. Almost all custom duties are collected at thePort of Karachi.Background and History of NFC:In 1971, Pakistan was cut into two by our enemies with the indirect support of our fellow Pakistani’s andhence we lost East Pakistan to Bangladesh. There are many reasons that can be attributed to the 1971incident but one of the major one is the ―Distribution of Resources‖ among the provinces i.e EastPakistan and West Pakistan. Since East Pakistan was responsible for majority of our output, it was itsright to get the major portion of it as well, however, it was not allowed to take when it actually ownedand most of it was used in West Pakistan. This infuriated the Bangladeshi people and contributedtowards their final revolt against the Government owned by West Pakistan.It is worth mentioning here for the ready reference of our readers that Bangladesh i.e East Pakistanbefore 1971, was more populous then West Pakistan but it was still discriminated by the West Pakistani.e current day Pakistan. At that time, the distribution of resources based on population was never raisedby anyone since it would have resulted in greater share of East Pakistan from the Federal Divisible Poolor in Federal Budget for East and West Pakistan.Article 160(1) of 1973 Constitution:NFC is constituted under Article 160(1) of the 1973 constitution (Annex I) and proposed to be held atthe intervals of five years. Its members are Federal Finance Minister (Chairman), Provincial FinanceMinisters and other concerning experts which the President may appoint after consultation withprovincial Governors [Constitution of Pakistan (1973)]. The main charter of NFC is to recommend on thefollowing [Pakistan (2006b)]:(1) The distribution of specified taxes, duties between federation and provinces. (2) The disbursement ofgrants to provincial governments. (3) The borrowing powers exercised by federal and provincialgovernments. (4) Any other financial matter referred to commission.There is a need for inclusion of other factors like infrastructure, poverty, backwardness, revenuegeneration, environment, etc. to be taken into account for justifiable of resource distribution. Even if welook at our neighboring country India, various criteria are used for resource distribution from central toprovincial governments. So, in order to achieve equity, such policies should be devised which takedifferent aspects of development into its account while distributing the resources. The issue of resourcedistribution among federal and provincial governments never proved to be simple and is a much complexissue. But when we go through the history of NFC, it becomes obvious that the problem of resourcedistribution is never taken seriously.
  2. 2. Controversy on Sales Tax:A peep into revenue distribution history of the sub continent reveals that sales tax was in exclusivedomain of provincial governments before 1947. It was partly federalized to the extent of 50 per cent in1948-49 budgets, the first of independent Pakistan, to meet the impact of massive refugee influx inKarachi which was then the federal capital.it was in 1974 NFC award that sales tax was completely federalized and the noises made in Karachi wereignored. It declared population as the only criterion for distribution of revenue.Previous Awards:SINCE 1973 after the promulgation of a consensus constitution by an elected and popular government,there have been three national finance commission awards enforced in 1974, 1991 and in 1997. But thethree NFCs constituted in 1979, 1984 and 2,000 failed to reach consensus and ended in a deadlock.Of the three commissions that failed, two were formed in 1979 and in 1984 during the military rule oflate General Zia-ul-Haq and the third one, the current NFC was formed in the year 2,000 after GeneralMusharraf took over the government in October 1999. This NFC continued functioning after the October2002 elections with some changes in its composition.The first NFC award was given in 1974 by the elected government of late Z.A. Bhutto. This award setpopulation as the only criterion for revenue distribution among the provinces. Custom duties, the mainrevenue earner was kept out of the divisible pool and the sales tax was completely federalized.The second NFC award was given in 1991 by a political government of PML headed by Mian NawazSharif. This NFC award recognized for the first time, the rights of the provinces on natural resources andthe provinces were given royalty and gas development surcharge on oil and gas.And the third NFC award was declared in February 1997 by a caretaker government of Farooq AhmedLeghari and Prime Minister late Malik Meraj Khalid. It turned out to be the most controversial NFCaward, though still operative, despite the expiry of its five- year term in 2002.7th NFC Awards:Location: Lahore Chairperson: Finance Minister Shaukat Train Duration of arguments: 3 daysProvincial share of the divisible pool would increase from the present 47.5 per cent to 56 per cent in thefirst year of NFC (2010-2011) and 57.5 per cent in the remaining years of the award under the verticaldistribution of resources. He claimed that this share would virtually be over 60 per cent. DuringMusharraf regime, provinces were demanding for a 50% provincial share in the divisible pool.The federal government has agreed to cut tax collection charges from 5.0 per cent to 1.0 per cent andthis amount would also be added to the divisible pool. About the thorny issue of sales tax on services, hesaid the NFC recognized sales tax on services as a provincial subject and it might be collected by therespective provinces.The multiple indicators under 7th NFC AwardMultiple Indicators Weights1 Population 82.0%2 Poverty/Backwardness 10.3%3 Revenue Collection/Generation 5.0%4 Inverse Population Density 2.7% (Urban-Rural)Out of 56 % provincial share of total divisible pool, financial resources will be distributed among theprovinces in following ration.Punjab 51.74% Sindh 24.55% Khyber-Pakhtunkhwa 14.62% Balochistan 9.09%
  3. 3. Provincial Autonomy in PakistanIntroduction:Complete provincial autonomy means absolute independence of provincial government.Constitution in Pakistan is going through a major reshape under proposed 18th amendment andprovincial autonomy is focus of this process and a buzzword in Pakistan now a day. Provincial autonomymeans a system of provincial government independent and free from any external influence or reliance.Provincial Autonomy in 18th amendment:The 18th amendment to Pakistan’s constitution became law after country’s President signed it on April19, 2010. This historic accomplishment was achieved after many rounds of discussions andcompromises. The key achievement of endeavor was restore much of the original 1973 constitution andto shift away the massive power that was given to the Presidency under military dictators General Zia-ul-Haq and General Pervez Musharraf. However, the people of small provinces were once again cheatedaway and the promise of provincial autonomy was largely limited to cosmetic changes and use of buzzwords such as abolition of the concurrent legislative list containing subjects where the Federalgovernment and the four provincial had shared jurisdiction prior to the 18th amendment. Indeed, it wasthe long standing demand of provinces to do away with concurrent list and restore sole provincialjurisdiction as provinces had enjoyed under British before Pakistan was created. Deletion of concurrentlist is the crux of the matter in this scenario.1. Article 38 .Promotion of social and economic well-being of the people.- Added new paragraph (g) theshares of the Provinces in federal services, including autonomous bodies and corporations establishedby, or under the control of the Federal Government, shall be secured and any omission.2. Article 156 – National Economic Council – 18th Amendments adds words ―added ―Balanceddevelopment and regional equity‖.3. Article 161 – Natural gas and hydro-electric power – 18th Amendment adds clauses that:(a)• the net proceeds of Federal duty of excise on natural gas levied at well-head and collected by theFederal Government and of the royalty collected by the Federal Government, shall not form part of theFederal Consolidated Fund and shall be paid to the Province in which the well-head of natural gas issituated;(b) the net proceeds of the Federal duty of excise on oil levied at well-head and collected by the FederalGovernment, shall not form part of the Federal Consolidated Fund and shall be paid to the Province inwhich the well-head of oil is situated.4. Article 167 – Borrowing by Provincial Government — 18th Amendment: After clause (3) the followingnew clause shall be inserted, namely :‖( 4) A Province may raise domestic’ or international loan, or giveguarantees on the security of the Provincial Consolidated Fund‖.5. Article 172 – Reports of Auditor-General – 18th Amendment adds a provision that ―Subject to. theexisting commitments and obligations, mineral oil and natural gas within the Province or the territorialwaters adjacent there to shall vest jointly and equally in that Province and the Federal Government‖.Although it was the demand of the provinces that they should have equal ownership in all mineral oiland natural gas fields including the existing ones which the above clause continues to keep under
  4. 4. federal ownership. Nevertheless, it is a reasonable compromise.6. Under the 18th amendment, the following matters are moved from PART I (where jurisdiction isstrictly federal) to PART II (where Council of Common Interests advises):* Electricity* Major Ports* Census* National planning and national economic coordination* Legal, medical and other professions*Standards in institutions for higher education and research, scientific and technical institutions.7. Other than some jurisdictions from Concurrent Legislative List and Part I of Federal Legislative list thathave been moved to PART II of Federal Legislative list, the Concurrent List is abolished and theProvinces regained the jurisdictions on the following matters:* Sales Tax on Services (The fact is in most democratic countries.* Duties in respect of succession to property.* Estate duty in respect of property.Conclusion:Provincial autonomy is our main national issue though there are constitutional provisions available toimplement it. We as a nation are living under a system that was enacted to safe guard imperialistdesigns. But now we should emerge as an honorable and independent nation. For this, we must draft anew social contract. But do not have such social, economical and political factors which can cause indeclarations of new social contract.
  5. 5. ASSIGNMENT POLITICAL SCIENCE # 3 WHAT ARE THE CONTRIBUTIONS OF NFC AWARDS IN INSURING PROVINCIAL AUTONOMY IN PAKISTANSUBMITTED BY: FARAH AKRAM SEMESTER: 7SUBMITTED TO: 1. MIS ZAMMURAD KINNAIRD COLLEGE FOR WOMEN LAHORE

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