Centre-provinces fiscal pact: Aurangzeb rules out immediate change to NFC award

• Pact focuses on unified fiscal network between Centre, provinces.
• Finance Minister terms the agreement a "step in right direction".
• Move aimed at increasing tax revenue from agricultural sector.

ISLAMABAD: Finance Minister Muhammad Aurangzeb has said that there would be no immediate change in the National Finance Commission (NFC) regarding the financial agreement between the federal and provincial governments, The News reported on Thursday.

"At the first stage, there will be no changes in the NFC Award at the moment but the fiscal space will be created through shifting provincial nature projects from the Public Sector Development Programme (PSDP) to the federating units," said the finance minister while talking to reporters after launching the Pakistan Economy Dashboard.

The statement follows the finance czar's earlier remarks regarding a "National Fiscal Pact" (NFP) aimed at addressing Pakistan’s external financing gap through the harmonisation of provincial taxes and enhancement of revenue collection.

"We will sign the National Fiscal Pact with the provinces, which will help us address the external financing gap," he said last month.

The fiscal pact is aimed at creating a unified fiscal framework between the federal government and all four provinces, focusing on expanding tax revenues from the agriculture sector, growing provincial revenues and realigning federal expenditures.

Expanding on the matter, Aurangzeb said that the NFP  would focus on three major areas, including raising tax revenues through close coordination such as slapping Agriculture Income Tax (AIT) by the provinces, devolving expenditures such as shifting provincial nature development projects to the federating units from the PSDP and thirdly improving governance through collaborative efforts.

"For instance, the Higher Education Commission (HEC) related spending will be shifted to the provinces. Benazir Income Support Programme (BISP) has not yet been taken as discussions are still underway,” he said while talking to a select group of reporters after launching the Pakistan Economy Dashboard," he remarked.

The NFP, he added, was a step in the right direction. The minister said that the federal government's PSDP stood at Rs1,100 billion but the two largest provinces' ADPs were more than Rs2,000 billion.

However, he expressed hope that after this diversion of projects to the provinces, the fiscal space would be made available but he showed reluctance to share any projected figures.

Earlier, in his address on the launch of "Pakistan Economy Dashboard", the minister said: "Pakistan's economy is at a good place and there is a need to leverage this position for achieving permanence."

He mentioned that the stabilisation was achieved and now the focus will be on the growth path. He said debt management rejected bids for the provision of borrowing in recent weeks conveying a clear message that the government was no more a desperate borrower.

The inflation, he said, had receded more than expected and the government was no more desperate for borrowing. The banks, he said, would have to go out to find out borrowing from the private sector, which is known as the engine of growth. There is not only the policy rate but it’s the KIBOR (Karachi Inter-Bank Offered Rates) which plays an important role in increased borrowing for the private sector.

The minister said there was a need to leverage hard-earned macroeconomic stability for achieving economic growth on a sustained basis.

"We will continue undertaking structural reforms for improving tax to GDP ratio," he said, adding that there was a need to avoid the populist approach.

The minister also noted that it was a fantastic opportunity and termed it the "defining moment" for the country, as it could become the last programme of the IMF. It depends upon how the country will execute these reforms agenda.

He said digitisation in the Federal Bureau of Revenue (FBR) could not succeed so far because the data was not integrated. He said a lesson was learnt through digitisation in the FBR as for finding out new filers in the tax system, the dots were not connected properly despite having all kinds of the flow of data.

He said it was a good move where the government placed one window shop for sharing a collaborative approach to share economic and social sector data of the last fifty years.

Ali Pervez Malik, Minister of State for Finance, said the IMF programme under the EFF would create solid grounds for improving economic fundamentals. He said the economy dashboard would help achieve inclusive growth, overcome twin deficits and bring out the country from the mantra of boom and bust cycles.