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EDITORIAL: A Business Recorder exclusive report has revealed that the government of Punjab has urged the federal government to clear its long-standing dues relating to net hydel profit (NHP) as it is facing fiscal challenges on different accounts.

Article 161(2) of the constitution notes that “the net profits earned by the Federal Government or any undertaking established or administered by the Federal Government for the bulk generation of power at a hydroelectric station shall be paid to the province in which the hydroelectric station is situated….Net Profit shall be computed by deducting from the revenues accruing from the bulk supply of power from the bus-bars of a hydroelectric station at a rate to be determined by the Council of Common Interests (CCI), the operating expenses of the station which shall include any sums payable as taxes, duties, interest or return on investment and depreciations and element of obsolescence, and overheads and provision for reserves.”

This accounts for differences of opinion in the CCI in the calculation of NHP when hydropower projects have the power plant situated kilometres away from the main reservoir and interconnected through a power channel or a power tunnel. Examples include the 1450MW Ghazi-Barotha project with its diversion barrage at Ghazi in Distt. Haripur (KPK) and power station at Barotha in Distt. Attock (Punjab) with a 52km-long power channel in between and under construction 969MW Neelum Jhelum Hydropower Project in AJK having its diversion headwork on river Neelum at Nouseri with a power tunnel connected to an underground power plant 32km away discharging into river Jhelum near Chattar Kalas.

It is, however, important to note that the request for release of NHP by Punjab pertains to the fiscal challenges it is facing. Business Recorder has always supported the imposition of a tax on agricultural income at par with the tax payable by other income groups. The Centre led by military dictators as well as the three national parties — PPP, PML-N and PTI — has consistently failed to amend the constitution that stipulates that agricultural income tax is a provincial subject. However, sadly, all provincial governments have also consistently failed to take an appropriate decision that would ensure that farm income tax is at par with the tax payable by other income groups.

The reason is obviously the heavy representation of rich landlords in the country’s national and provincial assemblies — lawmakers who have successfully nullified all attempts to make them pay income tax at the same rate as that payable by even the salaried class. This is in marked contrast to those operating in the services sector, who in spite of being the largest contributors to the country’s Gross Domestic Product today, do not exercise similar influence as all four provinces are proactively raising the tax collections under this head.

There is no doubt that fiscal space remains a source of concern to the Centre as well as the provinces. Subsequent to the passage of the 18th Constitutional Amendment in 2010 that devolved several subjects, including health, education to the provinces — subjects that remain under the Centre due to the provinces’ failure to develop capacity even after 11 years, coupled with the seventh National Finance Commission award that allowed the provinces’ share to rise from 46.5 percent to 57.5 percent in the divisible pool from 2011-12 onwards, it is high time that the provinces not only fast track the development of their capacity but also supplement their resource base through a tax on farm income that is at par with income tax payable by other sectors.

With higher revenue must come higher responsibility; however, unfortunately none of the four provinces appears to be remotely on track to fulfil their enhanced constitutional responsibilities.

True that the federal government began to offset the decline in its share of the divisible pool through provincial surplus, in the current year the provincial surplus has been projected at 570 billion rupees which is nearly 17 percent of total divisible pool for the year at 3,310 billion rupees, yet provinces have rarely if ever met the targets set by the Centre especially during the past three years Sindh which is ruled by an opposition party. One would hope that given the current state of the economy partisan economics be avoided as studiously as partisan politics.

Copyright Business Recorder, 2021

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