THE Khyber Pakhtunkhwa government is upset with Islamabad over the held-up long delayed net hydro profit payments to the province.

Islamabad has stopped such transfers for the past 14 months.

The province has been receiving a capped amount of net hydro profit share of Rs6 billion every year from Wapda since early 1990s. However, under an agreed formula, the federal government has to pay Rs500 million to the province every month. This promised amount has not been paid in full. Last year, KP received only Rs3 billion against this account.

“We have not received a single penny from Islamabad so far in 14 months”, provincial Finance Secretary Sahibzada Syed Ahmad told Dawn.

The total amount since third quarter of the last fiscal year has reached to Rs6.5 billion. This includes Rs3 billion non-payment of last year along with this year’s Rs3.5 billion, which the Wapda is not willing to pay to the province.

Ahmad said that Chief Minister KP Amir Haider Khan Hoti has already taken up the issue with the Prime Minister Raja Pervez Ashraf as well. “We have sent several letters to the federal finance ministry in this regard. We have not received any positive indication from the ministry”, he complained.

With this shortfall in transfers of payments, the provincial budget deficit is expected to rise further as the budget framework was built on the projected amounts that KP was to receive since the province has a very narrow tax base. However, the finance secretary said that it will be too early to say whether the shortfall in transfers will be adjusted by cutting the current expenditures or provincial development expenditures.

The KP government is constantly pushing Islamabad to uncap the net hydro profit and is demanding an amount of Rs42 billion annually on this account. No understanding has been reached on this claim of the province so far.

An official of the provincial government argued that the capping of hydro profits was an injustice with KP. He said that the provincial stance for uncapping had been acknowledged by an arbitration tribunal headed by former Chief Justice Ajmal Mian and A.G.N. Qazi Committee as well.

The tribunal in 2005 had declared that the province should be given Rs25 billion annually as its share in the profit earned on the sale of hydro power generated in KP. It had also proposed that this share should be increased by 10 per cent every year. As per the arbitration tribunal’s award, the province’s share by 2011-12 stands at around Rs40 billion.

KP is believed to be running out of cash because of delay in federal transfer of funds to the province. While there is no denying that as per constitution, the federal government should timely release payment to the province, the transfers should not turn out to be the main source of revenue generation and the province should also mobilise resources from domestic revenues.

The province’s reliance on the federal resource transfers has increased manifold in the past few years. Over 92 per cent of the revenue comes from the federal divisible pool as a result of the seventh NFC Award and 18th Amendment.

As a result of the implementation of the seventh National Finance Commission Award, the province’s share from divisible pool had jumped from 49 per cent to 56 per cent in 2010-11 while further enhanced to 57.5 per cent for the next four years.

From the federal divisible pool, KP will receive an estimated Rs183.68 billion in 2012-13 as against Rs159 billion in 2011-12 as share in federal taxes, an amount of Rs22 billion as special grant for the war on terror in 2012-13 against Rs18.02 billion in 2011-12; Rs9.88 billion as GST on services in 2012-13 as against Rs10.03 billion in 2011-12.

Unfortunately, no attempt has been made to broaden the provincial tax net in the past four-and-a-half years. The tax net was not extended to all sectors with huge incomes but which pay no or very little taxes. No measures have been taken to tap revenues from agriculture, real estate and other under-taxed sectors because of strong resistance of provincial elites including cabinet members.

The revenue from the provincial taxes has been projected at Rs7.8 billion for 2012-13, which is almost similar to the amount estimated for the current fiscal year.  —Mubarak Zeb Khan