10/13/2014

Name: Majid
Class: BBA-VII
Q: 1
What is the role of NFC (National Finance Commission)? What is 7th
NFC award and which formula is applied for the distribution of income
to the premises under 7th NFC award?
The National Finance Commission Award is a series of planned economic program enacted since
1951. Constituted under the Article 160 of the Constitution, the program was emerged to take
control of financial imbalances and equally managed the financial resources to four provinces to
meet their expenditure liabilities while alleviating the horizontal fiscal imbalances. As per
Constitution, the program awards the designs of financial formulas of economic distribution
to provincial and federal government for five consecutive years. All together, a total of seven
awards have been reimbursed since its emergence in 1951, by Prime Minister Liaquat Ali Khan.
Stipulations and directions mentioned by the Constitution, the provisional governments and
federal government competes to get higher share of the program's revenues in order to stabilize
their own financial status.
Intergovernmental transfer of economic resources is chaired by the President of Pakistan whose
constitutional purpose is to supervise the system of fiscal transfer to correct the vertical fiscal
imbalance between provincial and federal government, and horizontal fiscal imbalances
between four provinces. Government financial specialists, mathematicians, and economists
studied the mathematical and statistical aspects of the program before recommending the
government to enact the program. Due to the program producing a political realignment and the
constitutional stipulation regarded a unanimous political concession between four provinces, the
program has fever conclusive results, and only seven awards have been enacted since its
emergence in 1951. With the implementation of devolution plan, the government has devolved
various functional assignments to the local tiers of the administration. Nevertheless, are large
fiscal deficits among these local tiers on the part of public service delivery as of their
assignments, mainly due to concentration of revenue collection at centre through major tax
heads? For proper service delivery there is a need for higher share for the provinces in the NFC
awards.
Systematic formula comprises of four stages; firstly, revenue sharing occurs at federal and
provincial government through National Finance Commission (NFC), secondly, from provincial
government to local government through Provincial Finance Commission (PFC);thirdly, from
federal to local government and lastly from local to local government (e.g. District Government
to Tehsil Municipal Administration). On the other hand random transfers include:
development/special grants, executives discretionary funds and parliamentarian funds, etc. In
this paper the focus is on the systematic resource transfers from Federal to Provinces only.
The first official NFC award was enacted under this program in 1974 by the government
of Prime Minister Zulfikar Ali Bhutto, which produced conclusive results. The historic
announcement of the 7th NFC Award on 18th March 2010 has resolved the long standing issue
of distribution of resources between the Federation and Provinces of Pakistan. In the 7th NFC
Award the share of Provinces in vertical distribution has been increased from 49% to 56% during
2010-11 and 57.5% during the remaining years of the Award. The traditional population based
criteria for horizontal distribution of resources amongst the Provinces has been changed to
Multiple-Criteria Formula. According to these criteria; 82% distribution was made on
population, 10.3% on poverty and backwardness, 5% revenue collection/generation, and 2.7% on
inverse population density (IPD). Federal Government had cut down its collection charges from
5 percent to 1 percent, which would largely benefit the provinces. Realizing the role of
Pakhtunkhwa in the war on terror 1% of the net divisible pool was assigned to this Province.
Under the new formula, Punjab would get 51.74 percent from the divisible pool, Sindh 24.55
percent, Khyber Pakhtunkhwa 14.62 percent and Baluchistan 9.09%. In the new award Punjab
has given up 1.27 percent, Sindh 0.39 percent and Khyber Pakhtunkhwa 0.26 percent, while
Baluchistan has gained.
Q.2: What taxes can be applied by Federal Government?

Federal Government Taxes:
Income Tax
Super Tax
Wealth Tax
Gift tax
Turnover Tax
Corporate Asset Tax
Corporate Income Tax (A)
Import Duties
Import Surcharge
Export Duties
Iqra Surcharge
Income Tax on imports
Import License Fee
Import Registration Fee
Export Registration Fee
Central Excise Duty
Sales Tax on Manufactured goods
Capital Value Tax
Export development Surcharge
Development Surcharge on
Petroleum
Gas Development Surcharge
General Sales Tax
Federal Education Cess
Workers Participation Fund
Workers Welfare Fund
Estate Duty
Zakat
Ushr
Oilseeds Development Cess on
Companies
Tobacco Cess
Cotton Cess
Development Surcharge on
Electricity
Textile Technology Cess
Airport Tax
Cargo throughout @ 2% charges freight charges and an additional three 3% for
immediate clearance at Quaid-e-Azam Airport, according to an advertisement in daily,
Business Recorder, February 12, 1998.
Capital Gain Tax
Q.3: What taxes can be applied by Provincial Government?
Provincial Government Taxes:
Professional Tax
Property Tax
Vehicle Tax
Stamp Duty
Entertainment Tax
Betterment Tax
Social Security Contribution
Explosive License Fee
Provincial Education Cess
Capital Gain Tax
Punjab Airport Tax
Provincial Excise Duty
Karachi Dock Labor Board Cess
Cess on Hotels
Cotton Fees
Paddy Development Cess
Provincial Excise Duty
Land Revenue Tax




Q.4: What is tax to GDP ratio? In case of Pakistan which measures
should be taken to improve this ratio? Briefly explain.

The Tax-GDP ratio is an economic measurement that compares the amount of taxes collected by a
government to the amount of income that country receives for its products. Tax-to-GDP ratio has
declined during the current year despite an increase in tax rates. The government had set a target to
achieve the ratio of 10.9pc this year, which has now been brought down to 10.5pc on the basis of the
collection in the first 10 months and projected collection in the remaining six weeks.
Measures to improve Tax-GDP Ratio

A vital campaign for documentation of economy can be launched.
Mobilization in data with an integrated database system linkage with NADRA.
Political Stability
Share of services sector, agriculture sector, livestock, textile, sports, etc. be made
proportionate to their contribution to the GDP of the country.
Improvement in direct tax collection and administration.
Tax from all the provinces should be fair.
Effective and transparent incentive and reward system for the tax collectors
Punishment for those who violate rules