NFC Sindh Case Historical and Constitutional Analysis

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NFC Sindh CaseHistorical and Constitutional
Analysis

• Barrister Zamir Ghumro
• Sindh Dost Rabita Council
• Karachi November 14, 2009

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Back Ground 1935 to 1947

• Government of India Act 1935
• Sindh declared province on 1st April 1936
• Financial Relations Between the Federation and
  Provinces

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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.

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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

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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.

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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.

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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.

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ESTABLISHMENT OF WEST PAKISTAN----ONE UNIT

• Sindhs provincial status abolished in 1955.
• West Pakistan becomes one province.
• Sindhs 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 Sindhs resources, lands.
• Sindh made political orphan. Wages valiant
  struggle against One Unit.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.
  

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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.

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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.

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PRESENT VOLUME OF TAXESTHIS 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.

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DISTRIBUTION THIS YEAR AND SINDHS 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.

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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.

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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.

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SINDH ASSEMBLYS 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)

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OUR STANDSINDH ASSEMBLYS RESOLUTION AND
CONSTITUTION

• No conflict in our stand, Sindh Assemblys
  resolution and article 160 of the constitution.
• Article 160 mentions only distribution between
  the Federation and each province.
• No distribution among the provinces allowed.

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SINDH GOVERNMENTS STAND

• Centre should keep money without any basis.
• No separate accounts demanded.
• After centres share, money should be distributed
  among provinces.
• Complete violation of the constitution, Sindh
  Assembly resolution.

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PPPS 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 Sindhs financial sovereignty to
  Punjab.

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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 Sindhs money.

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NFC DECISION MAKINGCONSENSUS OR MAJORITY VIEW

• PPPs Finance Minister Dr Mubashar Haasan 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.

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NON ISSUES IN NFCSINDH GOVERNMENT TRAPPED

• GST on services is purely a provincial subject.
• CM and Bengalis contradictory statements.
• CM says we will get 25 billion
• MR. Qaisar Bengali says we will get 18 billion.

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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.

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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.
• Sindhs well head rates are higher than other
  provinces.
• Reason is that gas discovery is new.
• They have been equalized with all provinces!
• Balochistans gas consumed by Punjab and NWFP.
• Sindh government surrenders on this vital issue.
• Hydro electric profits issue between federal
  government and NWFP

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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.

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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.

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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.
• Economists job is to apply available funds not
  invent distribution formula or interpret law and
  constitution.

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CONCLUSION

• Sindh being cheated and defrauded by NFC due to
  Sindh Governments abject surrender of Sindhs
  principled stand enshrined in the historic
  resolution of Sindh Assembly in 2003 and
  principles of Federalism.

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• Thanks