Provinces are unlikely to agree to the federal government request to forego their share of the divisible pool allowing 3 percent for development of erstwhile federally administered tribal areas as pledged by Prime Minister Imran Khan during his address in Wana on Wednesday.
The Prime Minister committed Rs100 billion development assistance for the former FATA areas.
Sources in the Finance Ministry on condition of anonymity further stated that the federal government does not have resources to create fiscal space of Rs 100 billion unless provinces agree to revisit their share of the divisible pool.
More resources for the provinces were agreed in the 7th NFC Award while the 18th Constitutional Amendment, passed in 2010, allowed the devolution of social sector subjects including education and health to provinces. However provinces have yet to develop capacity to deal with these subjects and the federal government continues to allocate resources to devolved subjects.
Sources acknowledged the Constitutional restriction with regard to any reduction in allocation to provinces but pointed out that there is no restriction on changing the composition of the divisible pool taxes. However any change would require a consensus to be developed in the next National Finance Commission award. That consensus sources told this correspondent would be a challenge given the PTI government's daily attacks on the two major opposition parties outside parliament - the PPP and the PML-N.
Finance Ministry recently proposed to the provinces that a percentage share of divisible pool taxes should be set aside to help federal government manage the burden placed on it of resettlement of displaced persons after the launch of operation Zarb-e-Azb. Pakistan has been facing a challenging security situation during the past several years, both internally and externally.
Several options were proposed to the provinces for removing the imbalance in revenue sharing between the centre and the provinces including: (i) raising revenue; (ii) revisiting divisible pool composition; and (iii) sharing obligatory expenditures relating to security and special areas like former FATA.
Previously, federal government was funding the needs of the AJK government but now Gilgit Baltistan is functioning as a de facto province and the federal government is meeting both its current and development expenditure requirements. The quantum of expenditure for Gilgit-Baltistan in fiscal year 2017-18 was Rs 125 billion (3.5 percent of the divisible pool taxes).