Sindh budget to widen urban-rural gulf?

Those who lack imagination cannot gauge what is lacking in the budget that the Sindh Finance Minister, Syed Murad Ali Shah, has unveiled 'free of any new taxes' budget for financial year 2011-12, with an outlay estimated at Rs 457.5 billion while receipts anticipated at Rs 458.4 billion, showing a surplus of Rs 882 million. The development outlay for the year is Rs 161 billion.
Traditionally, provincial finance ministers take a perverse pride in trumpeting their 'achievements' by claiming that budgets planned and presented by them envisage "no new taxes". It, however, regretfully indicates a sheer lack of vision on their part to raise vitally needed additional resources particularly in underdeveloped provinces such as Sindh, Khyber-Pakhtunkhwa (K-P) and Balochistan and the provinces' continued and increasing reliance on federal largesse. Competent finance ministers are in fact those individuals who are remembered for their strong sense of innovation, creativity and, above all, responsibility. Through budgetary measures, they are required to provide an environment where business supported by improvement in infrastructure can thrive and create job opportunities. Instead, the Shah combination plans to create 17,000 new jobs in the government.
Instead of protecting the weak segments of society in a targeted manner, our political mindset is to give handouts to all and sundry to earn political mileage as the practice of desiring and receiving benefits which have not been earned has, therefore, become so prevalent in our societies that even the wealthiest feudals expect the government to give them a handout. Political considerations have definitely coloured our political leaders' decisions on the economy. The passage of 18th Amendment giving ownership of mineral and oil resources to provinces provided an opportunity to explore hitherto unavailable resources. The Sindh Budget falls woefully short on this score.
Last year, the Sindh government did face a formidable challenge in the shape of massive destruction of infrastructure and loss of standing crops that the unprecedented floods in nine districts had caused. However, on account of the urban-rural divide, the government failed to impose a flood surcharge to meet the additional emergency expenditure. Instead, it decided to cut back on its development plans and diverted resources to help around seven million people. Within every crisis there resides an opportunity. The parliamentarians got a chance to directly interface with their rural constituencies in an effective and meaningful manner and provide solace and comfort to them in their hour of need. Now, the results of next elections will determine whether or not they have come up to the expectations of the electorate.
Out of the four, Sindh was the only province that exercised its right under the constitution to collect General Sales Tax on services. Last year, the Sindh government allowed the Federal government to collect this tax on their behalf as it needed time for capacity enhancement to properly collect this tax. Against an estimated Rs 25 billion only Rs 17.4 billion are expected to be collected as Sales Tax on services in the outgoing fiscal year. For the next financial year, the estimates again target the same amount of Rs 25 billion. What could be the most plausible reason behind this decision is beyond our comprehension other than the provincial government's painfully slow response to capacity-building requirement.
The Sales Tax Act on services passed by the Sindh Assembly also appears to be reasonably flawed. The law does not stipulate any rate, nor does it indicate whether it is a fixed tax or an input and output tax. If it is indeed a fixed tax and is going to replace Federal Excise Duty on services in the GST mode, than the rate is required to be lowered. The Sindh government, therefore, needs to take a closer look at the law with a view to providing clarity in the complexity of this piece of seemingly controversial legislation. At the same time, it needs to adequately beef up the Sindh Board of Revenue in terms of technology and requisite skill sets of the manpower involved.
Tax collection on agriculture income in Sindh this year is a measly Rs 280 million. The estimate for next year under this head is Rs 428 million. Similarly, the total land revenue collection in 2010-11 is Rs 400 million. For the next year, the target fixed is an amount of Rs 450 million. Combination of these two taxes: agriculture income and land revenue - totals Rs 877 million in 2011-12. This amount is even less than the fees earned from registering and transferring documents under property tax - pitched at Rs 1.3 billion. Tax receipt of various motor vehicles fees is even higher - around Rs 4 billion - in the same period. This is indicative of a continued reliance on urbanites, allowing the landed gentry to get lots of 'vacation time' to enjoy life. Indirect tax collection in 2011-12 is Rs 218.7 billion out of total tax revenue of Rs 322.3 billion - bulk of this again comes from urban Sindh.
It is essentially its mistrust of Islamabad that has forced Sindh to exercise its collection rights enshrined in the Constitution. The attempt by the Federal Ministry of Finance to claw back the revenue given in the 7th National Finance Commission Award, through issuance of a statutory regulatory order in a serious or flagrant contravention of the agreement arrived at in NFC in Gwadar, has reinforced the view that Islamabad is not a neutral umpire in matter relating to the provinces. Sindh province's misgivings with Islamabad are based on a historic reality. But then, the Sindh government should also not make the same mistake and needs to create horizontal equity in taxation within the province. The decision to earmark public sector programme of towns within Karachi is certainly a divisive move. The formula provided under the provincial finance commission award allocates the division of resources to various districts within the province. The term of the last provincial finance commission award has expired. A new provincial finance commission needs to be reconstituted with a strong sense of urgency. The decision to decentralise the distribution of maintenance expenditure within the police force and provide the funds directly to each police station instead of giving it to the Inspector-General's office will help reduce the incidence of corruption. It is not uncommon to see a Station House Officer using unsavoury tactics to raise money for payment of utility bills, petrol and for purchase of office stationery. Complainants are often required to provide transport to police investigators to undertake on-spot visits. In the last two years, the allocation for public order and safety affairs has risen from Rs 28 to Rs 42 billion. Despite this highly significant increase, the law and order situation, particularly the high incidence of targeted killings in Karachi, and kidnappings in interior Sindh has gone from bad to worse. Political interference in postings and transfers within the force appears to be the chief reason behind this exceedingly worrisome situation.