ISLAMABAD: Since the passage of Eighteenth Constitutional Amendment in 2010, fiscal management, both at federal and provincial levels, is posing serious challenges. The federal government, having all buoyant and broad-based taxes, is not collecting adequate taxes while provinces, which are highly dependent on the NFC Award, have failed to raise their own resources for their ever-growing needs of development, maintenance of infrastructure and providing people with the facilities of education, health, transport and universal entitlements (clean drinking water, electricity, transport, accommodation etc). Besides the challenges on the fronts of resource mobilisation, fiscal deficit, burgeoning debt and poor allocation for social sectors, crucial issues like persistence of rent-seeking structures, non-availability of impersonal market relationships, lack of competitiveness, perpetual and gross violations of rule of law, non-acceptance of the norms of fair play, reckless borrowing and ruthless spending continue to bleed the economy and undermine democratic dispensation.
Eighteenth Constitutional Amendment also requires fiscal and administrative decentralization at the local government level [Article 140A of the Constitution]. However, even after six years no provincial government has bothered to establish functional, self-reliant and effective local government. There is no desire on the part of political leaders to implement Article 140A in letter and spirit. As the fiscal scene, both at federal and provincial levels is gloomy, people are being deprived of fundamental economic rights and not getting the constitutional right of municipal self-governance as envisaged in Article 140A of the Eighteenth Constitutional Amendment.
FBR has been persistently failing to realise the real revenue potential, which is not less than Rs. 8 trillion. Track record of FBR shows remote possibility of collecting even Rs. 6 trillion in the next five years to give enough fiscal space both to the Centre and the Provinces to come out of the present economic mess, thus providing some relief to the poor as well as trade and industry. Under the given scenario, neither fiscal deficit will recede nor dependence on external and internal debts deceases. People will face more tax burden, and further deterioration in quality of life.
As things stand, Pakistan will remain in debt enslavement and more and more people will be pushed below the poverty line. It is not possible to overcome perpetual economic and political crises unless the provinces are given true autonomy; ownership of all resources; generation of own revenue and exclusive right to utilise it for the welfare of their denizens.
Fiscal decentralization and municipal self-rule should essentially be linked with a social policy based on the principle of universal entitlements for all residents in terms of access to social benefits and social services. Taxation without representation also means denial of spending for the essential entitlements guaranteed in the Constitution.
The principle of universal entitlements seeks to prevent the formation of inequalities and the foundation of the poor as a separate social group, whereas residualism/marginalism, through assisting the poor and needy, implicitly defines them as certain types of social groups. In a nutshell, for achieving the goal of fiscal decentralization, local governments’ financial resources must commensurate with the responsibilities provided for by the constitution and the law to ensure both welfare of the people and sustainable growth at grass root level.
Managing high fiscal deficit (root cause of many economic ills) coupled with massive debt burden is the toughest challenge faced by fiscal managers of Pakistan. The well-admitted solution is: substantial increase in resources and drastic reduction in spending is easier said than done.
There is a need to reconsider the role of the Planning Commission. With the devolution of a large number of subjects to the provinces since the Eighteenth Amendment, the deletion of the subject of national planning from the exclusive domain of the Federal Government, and the placing of the National Economic Council (NEC) in the list of subjects mandated to be the joint responsibility of the Federal Government and the Provincial Governments, these moves raise fears of re-centralisation and reopening of settled issues. On their part, the provinces have not helped matters by neglecting the enhancement of their capacity to plan and implement, mobilize greater Provincial resources and the effective and judicious utilisation of a higher share of resources made available by the 7th NFC Award. Centralised planning was an important factor in the partition of the country in 1971. The planning, in the post-Eighteenth Amendment period has to be federalised rather than centralised. The Amendment has redefined NEC on the pattern of Council of Economic Interests (CCI). The NEC forms part of the Chapter 3 of the Constitution entitled Special Provisions. Before the Eighteenth Amendment, Article 156 related to the NEC had two clauses. Clause (1) described the composition and the clause (2) its functions. These clauses have undergone important changes after the Eighteenth Amendment. The pre-amendment clause (1) read as follows:
“The President shall constitute a National Economic Council consisting of the Prime Minister, who shall be its Chairman, and such other members as the President may determine:
Provided that the President shall nominate one member from each Province on the recommendation of the Government of that Province.”
While the apex planning body, the NEC, has been federalised, Planning Commission continues to be centralised. The spirit of the Constitution can be satisfied by (1) making Planning Commission, in place of the Cabinet Division, the Secretariat of the NEC and (2) by reducing the number of its members to five, one each from the Provinces and the Federal Government. Prime Minister chairs the NEC and there is no need for him to Chair the Planning Commission. The Chairman should be appointed by the CCI to represent the Federation.
Pakistan Institute of Development Economics (PIDE) is now a University under the administrative control of the Planning and Development Division. With Planning Commission moving to the CCI/NEC, the Planning and Development Division can continue to deal with the development issues of the Federal Legislative List, Part I. PIDE can play the role of a think-tank for the Planning and Development Division. There is an urgent need for restructuring the planning mechanisms in the provinces. At present, only Punjab has a Planning and Development Board, with members in charge of the main sectors. Other provinces have their respective Planning and Development Departments. An important reason why the centralised role of planning and the Planning Commission continues is the weak capacity of the provincial planning mechanisms. The devolution under the Eighteenth amendment has overwhelmed them with the large segments of education and health left with the Federal Government highlighting this point.
After the Eighteenth Amendment, the Planning Commission could no more be a centralised body. Federal Legislative List, Part I, contains subjects which lie in the exclusive jurisdiction of the Federal Government. Before the Eighteenth Amendment, its item 32 related to planning – “National planning and national economic coordination including planning and coordination of scientific and technological research.” After the Amendment, the subject was included in the Federal Legislative List, Part II. The last-mentioned List of subjects is neither exclusively federal nor provincial; it is an area of joint responsibility. In the Constitution, a special institution, the Council of Common Interests (CCI), has been created to supervise the affairs of the Federation listed in Part II of the Federal Legislative List.
Article 154 (1) states: “The Council shall formulate and regulate policies in relation to matters in Part II of the Federal Legislative List and shall exercise supervision and control over related institutions.”
Article 154(1) of the Constitution provides that the CCI [since the introduction of the 1973 Constitution on 14th August 1973, only 24 meetings of the CII were held—11 meetings in 37 years from 1973 to 2010 before 18th Amendment, 13 meetings in 3 years from 2010 to 2013, after 18th Amendment. After 18th Amendment, the Council considered and decided on 76 items out of which around 64 decisions were implemented. CII is still not working as required in the Constitution that is at least once in 90 days] shall formulate and regulate policies in relation to matter enumerated in Part-II of the Federal Legislative List and shall exercise supervision and control over related institutions. By abolishing the Concurrent List and deleting certain items from the Federal Legislative List Part-I, the Eighteenth Amendment has substantially increased the quantum of provincial autonomy. Second, the role of the provinces in the decision making of the federation has been substantially enhanced by the enlargement of the Federal Legislative List Part-II. Provinces now have more subjects to deal with than was the case before the Eighteenth Amendment. In the first place, they have been given full and effective control of the social sector, especially education, health, population, labour, social welfare, Zakat, Auqaf, environment, tourism, print media and cinematograph films, culture and archeology etc. Other than standards of higher education, research and international student’s exchange, the provinces are now entrusted with Education policy formulation, planning, and curriculum standards.
The Eighteenth Amendment gives provinces equal rights over their natural resources. Article 172(3) confers 50 percent ownership of hydrocarbon petroleum resources to the provinces. The subject was earlier held by the federal government. There still exist legal and administrative bottlenecks for implementing this provision.
Another landmark decision through the Eighteenth Amendment is Article 167(4) providing that: “A Province may raise domestic or international loan, or give guarantees on the security of the Provincial Consolidated Fund within such limits and subject to such conditions as may be specified by the National Economic Council”.
Article 167(4) thus ensures provinces to run and administer their own local government systems and enter into direct financial loan or credit arrangements with external and internal lenders.
In view of Article 167(4), the role of NEC has become very important though it has yet not been realised by the centre and provinces.
Below are some recommendations vis-à-vis implementation of Eighteenth Constitutional Amendment from a holistic point of view for better fiscal management and economic growth of Pakistan as well as make federation a true representative of all and not just a few privileged ones as has been the case for the last 69 years of its existence.
First and the foremost need is establishment of an independent, totally federalised, CCI Secretariat that must have equal representation of centre and provinces and must include technical experts to build its capacity and ensure that the CCI mandate can be effectively supervised. On the issue of interpretation of Article 172(3) and its implementation special attention should be given to allay the fears of the provinces.
1. The immediate problems like inadequate infrastructure in backward areas of all provinces and federally-controlled areas, lack of avenues for provincial revenue generation, low electricity generation capacity, and low quantum of representation of Balochistan in the Federal services must be resolved in CII on priority basis.
2. A comprehensive policy along with operational framework needs to be adopted to promote a culture of Inter-Provincial Coordination for developing and coordinating information and communication amongst Federal/Provincial organizations. Research analysis is required by respective sectors/departments to pre-empt the notion that provinces lack fiscal capacity or discipline to tackle social and economic issues. The provinces have to legislate and create the necessary infrastructure to fully utilize the potential of the devolution process for the benefit of provinces and their people.
3. The planning, in the post-Eighteenth Amendment period has to be federalised rather than centralised. The Amendment has redefined the NEC on the pattern of CCI.
4. There is an urgent need for restructuring the planning mechanisms in the provinces. At present, only Punjab has a Planning and Development Board, with members in charge of the main sectors. Other provinces have their respective Planning and Development Departments.
5. The message of the Eighteenth Constitutional Amendment is that the provinces should take charge of their own planning and development. This needs de-bureaucratization, appropriate investment in human capital and democratic devolution down to districts (Article 140A).
6. The provinces should have the exclusive right to levy indirect taxes on goods and services within their respective physical boundaries. Right to levy any tax on goods should be restored to the provinces as was the case at the time of independence. Right to levy tax on agricultural income tax should be given to federal government. Despite levying taxes that should have been with provinces, the federal government has miserably failed to reduce the burgeoning fiscal deficit that exceeded Rs. 2 trillion in fiscal year 2015-16. Had provinces been allowed to generate their own resources, the present chaotic situation could have been averted. Centre and provinces should work together under National Tax Authority (NTA) to improve efficiently in collecting taxes—see details of this in Towards Flat, Low-rate, Broad and Predictable Taxes, Islamabad: PRIME Institute (April (2016).
7. Indian has recently amended its Constitution to facilitate Goods and Services Tax (GST)—popularised as ‘on1e nation, one tax. The proposed GST will simplify and harmonise the indirect tax regime. GST will broaden the tax base, and result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one state to another in the chain of value addition, there will be an in-built mechanism in the design of GST that would incentivize tax compliance by traders. It is thus, expected that introduction of GST will foster a common and seamless Indian market and contribute significantly to the growth of the economy. Pakistan needs to learn from this and must also consider introducing harmonised GST as early as possible.
8. The provincial parliaments in Pakistan should be pressurised by media and civil society to establish without any further delay effective and efficient local governments as ordained under Article 140A and reconsider the laws enacted so far on the basis of social policy—they have so far just copied the previous outdated ones with patchwork here and there. There is a strong perception in Pakistan that the ruling classes do not want to empower people through self-governance. They want to enjoy total control over resources. The local governments will not be meaningful unless entitled, within national economic policy, to have adequate financial resources of their own, of which they may dispose freely within the framework of their powers and for public welfare. Part of the financial resources of local authorities should derive from local taxes and spent for providing universal entitlements and development. Pakistan must follow the model of welfare states like Finland where resources available to local governments are based on a sufficiently diversified and buoyant nature to enable them to keep pace with modern day needs of an innovative economy.
9. We have monstrous size of government. Twenty-five ministries should be either dissolved or rationalised, thereby saving Rs 200 billion.
10. 400-500 billion on financing the losses of PSEs can be eliminated by restructuring and privatising those entities.
11. Badly targeted subsidies, consuming about Rs. 500 billion should be withdrawn and some part of the saved money could be directed to expand coverage of the social protection programme for the poor.
At present, both centre and provinces are not collecting taxes diligently. Pakistan’s tax potential at federal level alone is Rs. 8 trillion. If agricultural income tax and other provincial and local taxes are also collected efficiently, the total figure would be around Rs. 12 trillion. For harnessing the full tax potential at federal, provincial and local government levels, NTA is the need of the hour. Through consensus and democratic process, all the parliaments can enact laws for establishing autonomous NTA that would facilitate people to deal with single Revenue Authority rather than multiple agencies at national, provincial and local levels. The mode and working of NTA can be discussed and finalised under Council of Common Interests [Article 153] and its control can be placed under National Economic Council [Article 156].
The writer, Advocate Supreme Court and author of many books, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)
