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Introduction to Public Administration

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Introduction To Public Administration­MGT111
VU
LESSON 29
NATIONAL FINANCE COMMISSION
At the end of lecture the students will be able to:
-
Explain fiscal federalism
-
Explain and understand National Finance Commission
-
Explain tax sharing between Federation and provinces and amongst provinces.
Fiscal Federalism Defined
Fiscal federalism is distribution of fiscal functions and the tax collection and distribution of
resources among constituent units of federation. It deals with which taxes to be collected by federation and
which to be collected by the provinces. The federation will be responsible for distributive and regulative
function. However, allocation function will have to be devolved to constituent unit. This  brings  to  the
question of what taxes should be collected by federation and what taxes collected by constituent unit. The
basic framework of the federalism comprises the following:
1.
Constitutional jurisdiction of unit of government to be respected, i.e. the legislative list
must be adhered to in consonance with national objectives and integrity. This means there
should be financial and administrative autonomy to the federating units, however certain
functions are to be retained by federation.
2.
There should be a strong and continuous system of conflict resolution and consensus
building on national issues. Usually in a federal structure, there arise among provinces
differences in resource sharing. Therefore, there should be system by which these conflicts
are resolved.
3.
Involve sub national government in national decision making process. The provincial
government should be involved in national decision making.
4.
A lean federal structure. The organizational structure of federation should be leam i.e.,
flatter.
Federalism is a mechanism to achieve unity within a population whose characteristics have diversity
and variety in terms of culture, race, size, resources and population. It also refers to territorial organization
of political community in which there are two or more spheres and levels of government which combine
self-rule and shared-rule.
Shared-rule relationships amongst provinces can never be completely symmetrical, as size, wealth
and population differ from one constituent unit to another. Asymmetrical or plural federalism is an
appropriate way to give public expression to the demands of national minorities.
National Finance Commission (NFC)
According to the Constitution of Pakistan (1973) Article 160 (1) , NFC is constituted. The NFC is a
temporary body that decides criteria on the basis of which the taxes collected by the Federal Government
are distributed between Federation and Provinces and among provinces. Following are excerpts of the
constitution:
"within six months of the commencing day and thereafter at intervals not exceeding five
years, the President shall constitute a National Finance Commission consisting": the
Minister of Finance of the federal Government, the Minister of Finance of Provincial
Governments, and such other persons as my be appointed by the President after
consultation with the Governors of the Provinces".
Article 160 (2) states following taxes to be part of "divisible pool":
i)
Taxes on income, including corporation tax, but not including taxes on income consisting
of remuneration paid out of the Federal Consolidated Fund;
ii)
Taxes on the sales and purchases of goods imported, exported, produced, manufactured or
consumed;
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Introduction To Public Administration­MGT111
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iii)
Export duties on cotton, and such other export duties as may be specified by the President;
iv)
Such duties of excise as may be specified by the President; and
v)
Such other taxes as may be specified by the President.
The above taxes form the "Divisible Pool" i.e. "Pool" from which money is shared between
Federation and provinces.
The Fourth Schedule article 70 (4) of 1973 Constitution gives Federal Legislative list. Item 43 to 54
delineates all federal taxes. The interesting point is that more taxes have been included in the divisible pool.
The examples are of general sales tax and octroi tax which were provincial and district taxes respectively.
The two lists i.e. Federal Legislative list and Concurrent list give the function to be performed by
Federal Government and functions to be performed by Federal and provincial Government (Concurrent).
Criteria of Vertical Resource Distribution
From the Divisible Pool the resources are shared between Federation and provinces. This is called
Vertical resource distribution. It is distribution of resources from the federal government to the provincial
governments from the divisible pool. It is based on three factors: defence, debt servicing and social action
programme. The Federal Government using these criteria gives 37.55% to the provinces and retains the rest
with itself for running its expenditure.
Criteria of Horizontal Resource Distribution
Horizontal resource distribution is distribution of the 37.55% amongst the provinces. The criteria
used are `Population'. The use of these criteria is debateable and there is general lack of agreement on these
criteria
Multiple Criteria
Since the criteria used in horizontal distribution is population. Balochistan, NWFP and Sindh
disagree to the criteria. Because according to them Punjab has largest population. Therefore, it gets
maximum advantage from these criteria. Accordingly it is suggested that multiple criteria should be used.
The multiple criteria are:
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Population
-
Distance of per capita income
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Area
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Index of infrastructure
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Tax effort
Countries that have federal structure use multiple criteria.
NFC 1990
After every five years NFC is constituted by Federal government which announces "Award" i.e.
how resources should be shared. According to 1990 Award the Divisible Pool comprised of::
1. Divisible Pool:
a)
Income and Corporate Tax
b)
Sales Tax
c)
Export Duty on Cotton
d)
Excise Duty on Tobacco & Tobacco manufactures.
e)
Excise Duty on Sugar
It was announced that Divisible pool be distributed between the Federation & the Provinces in the
ratio of 20:80. That is, 20% will be retained by Federation and 80% to be divided amongst provinces. The
Provincial Shares were:
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Introduction To Public Administration­MGT111
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Punjab
57.88%
Sindh
23.28%
N.W.F.P
13.54%
Baluchistan
5.30%
2.
According to NFC 1990 also Special Annual grant of Rs.700 million & Rs.1000 million to
Sindh & Punjab respectively. Subventions to N.W.F.P. & Baluchistan for three years at the rate
of Rs.200 & Rs.100 millions respectively.
3.
Net Profit on generation of Hydro Power Stations located in the Provinces as per decision of
Council of Common Interests to be guaranteed by the Federal Government. This meant that
the profits from generation of hydro power should go to the province where power generation
house is located.
4.
Net Proceeds of Gas Development Surcharge on production basis at well heads after
deduction of collection Charges of 2%.
5.
The royalty & excise duty on oil & gas according to production.
6.
Practice of giving deficit grants & picking surpluses discontinued.
7.
Sales tax at retail level entrusted to the Provinces.
Conclusions
In this lecture we have examined concept of fiscal federalism and concept of federalism. The two
concepts relate to the sub-national governments (provinces) who may be of different in size, wealth, culture,
race etc. , but these constitute together to form federation. In this federal set up the sub-national
governments would differ in taxing powers; certain taxes would be the domain of federal government and
some could be with provincial government.
The Government of Pakistan, according to the Constitution constitutes NFC which announces its
Award on the basis of which resources are shared.
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Table of Contents:
  1. INTRODUCTION:Institutions of State, Individualism
  2. EVOLUTION OF PUBLIC ADMINISTRATION:Classical School, The Shovelling Experiment
  3. CLASSICAL SCHOOL OF THOUGHTS I:Theory of Bureaucracy, Human Relation Approach
  4. CLASSICAL SCHOOL OF THOUGHTS II:Contributors of This Approach
  5. HUMAN RELATIONS SCHOOLS:Behavioural School, System Schools
  6. POWER AND POLITICS:Conflict- as Positive and Negative, Reactions of Managers, Three Dimensional Typology
  7. HISTORY OF PUBLIC ADMINISTRATION I:Moghul Period, British Period
  8. HISTORY OF PUBLIC ADMINISTRATION II
  9. CIVIL SERVICE:What are the Functions Performed by the Government?
  10. CIVIL SERVICE REFORMS:Implementation of the Reforms, Categories of the Civil Service
  11. 1973 CONSTITUTION OF PAKISTAN:The Republic of Pakistan, Definition of the State
  12. STRUCTURE OF GOVERNMENT:Rules of Business, Conclusion
  13. PUBLIC AND PRIVATE ADMINISTRATION:The Public Interest, Ambiguity, Less Efficient
  14. ORGANIZATION:Formal Organizations, Departmentalization
  15. DEPARTMENTALIZATION:Departmentalization by Enterprise Function, Departments by Product
  16. POWER AND AUTHORITY:Nature of Relationship, Delegation of Functional Authority
  17. DELEGATION OF AUTHORITY:The Art of Delegation, Coordination
  18. PLANNING I:Four Major Aspects of Planning, Types of Plans
  19. PLANNING II:Planning ProcessThree principles of plans
  20. PLANNING COMMISSION AND PLANNING DEVELOPMENT:Functions, Approval Authority
  21. DECISION MAKING:Theories on Decision Making, Steps in Rational Decision Making
  22. HUMAN RESOURCE MANAGEMENT (HRM):Importance of Human Resource, Recruitment
  23. SELECTION PROCESS AND TRAINING:Levels at Which Selection takes Place, Training and Development
  24. PERFORMANCE APPRAISAL:Formal Appraisals, Informal Appraisals
  25. SELECTION AND TRAINING AND PUBLIC ORGANIZATIONS:Performance Evaluation,
  26. PUBLIC FINANCE:Background, Components of Public Finance, Dissimilarities
  27. BUDGET:Components of Public Income, Use of Taxes, Types of Taxation
  28. PUBLIC BUDGET:Incremental Budget, Annual Budget Statement, Budget Preparation
  29. NATIONAL FINANCE COMMISSION:Fiscal Federalism Defined, Multiple Criteria
  30. ADMINISTRATIVE CONTROL:Types of Accountability, Internal Control, External Control
  31. AUDIT:Economy, Effectiveness, Objectives of Performance Audit, Concepts
  32. MOTIVATION:Assumptions about Motivation, Early ViewsThree Needs
  33. MOTIVATION AND LEADERSHIP:Reinforcement Theory, Leadership, The Trait Approach
  34. LEADERSHIP:Contingency Approaches, Personal Characteristics of Employees
  35. TEAM I:Formal & Informal teams, Functions of Informal Groups, Characteristics of Teams
  36. TEAM II:Team Cohesiveness, Four ways to Cohesiveness, Communication
  37. COMMUNICATION I:Types of Communication, How to Improve Communication
  38. COMMUNICATION II:Factors in Organizational Communication, Negotiating To Manage Conflicts
  39. DISTRICT ADMINISTRATION:The British Period, After Independence, The Issues
  40. DEVOLUTION PLAN I:Country Information, Tiers or Level of Government
  41. DEVOLUTION PLAN II:Aim of Devolution Plan, Administrative Reforms, Separation of powers
  42. POLITICAL REFORMS:District, Tehsil, Functions of Union Council, Fiscal Reforms
  43. NEW PUBLIC MANAGEMENT (NPM):Strategy, Beginning of Management Approach
  44. MANAGERIAL PROGRAMME AGENDA I
  45. MANAGERIAL PROGRAMME AGENDA II:Theoretical Bases of Management, Critique on Management