PFC awards: don’t wing it

In last week’s coverage on Provincial Finance Commission (PFC) awards, it was argued that if the PTI is really serious about the PFC, it should draft a bill with wider political consultation to address the constitutional gaps on local government and its finances.

It was also argued that the bill should emulate the likes of Indian or Nepalese Constitution that has specific articles on constitution, composition, duration, powers, and responsibilities of municipalities including power to impose taxes; and the executive powers of local government in addition to specific provisions related to mayor and deputy mayor of municipalities, term of office of village/municipal assembly, and so forth. (See BR Research’s Provincial finance omission published 16, Jul 2020)

In addition to these, there are at least two other aspects that need to be addressed to make PFCs effective in Pakistan. The first of these revolves around the subject of taxation. That provinces have not devolved property taxes (arguably the biggest source of own revenues at the disposal of local governments) to the local level doesn’t speak well of the provincial political leadership. This issue cannot be over emphasized.

In cases where some taxes have been devolved to the third tier, local government laws allow provincial governments to regulate taxes and fees imposed by the third tier, which raises questions over the fiscal freedom of local government. Local governments also do not have complete autonomy to raise revenues and to make expenditure unless previously authorised by the provincial governments.

The issue of adequate representation of local government at the PFC also needs to be addressed. In all the four provinces, the composition of the PFCs as per respective local government laws is such that provincial representation in the PFC is much higher than the representation of local government.

It is understandable that most local government officials lack capacity to meaningfully contribute to such commissions, and that it is difficult to have representation of all the districts in each province. However, it is equally true that capacity issues can be addressed by secondments of finance staff from provincial government or technical representatives appointed by local government itself, whereas the issue of numerous districts could be resolved by creating a system of nominated representatives from various sub-tiers of local government.

Here one could take a cue from New Zealand and South Africa (and even India until of late) where local council associations are recognised by the law and given due representation at forums like the PFC. The issue of inadequate representation at PFC should not be taken lightly because participation and political representation is what third tier is all about. Will the PTI address these long pending concerns or will it simply wing it? Most observers already know the answer, but to give a benefit of the doubt, best wait and see.