Aug 17, 2011

No easy targets

Sindh government has a lot to deal with in the provincial budget after the passage of the 18th Amendment

By Shujauddin Qureshi

After announcement of the federal budget, the provinces are also busy in giving final touches to their annual budgets to be announced in a week or so. Sindh Minister for Finance, Syed Murad Ali Shah, will announce the 2011-12 budget in the provincial assembly. In Sindh, the main challenge for the provincial government’s financial managers would be increase its revenues through provincial taxes in the post-18th Amendment devolution scenario and allocations of adequate funds for development and running the government.

Poor governance and rampant corruption in the provincial set-up has already marred development efforts in the province and under-utilisation of the earmarked funds for development is a persistent problem in the province.

“Bad governance, corruption, and inefficiency are the main causes of lack of development in Sindh,” says Jami Chadio, a development activist in Sindh. “You can see a number of incomplete projects in all districts of Sindh, which is a proof of bad governance, inefficiency and lack of transparency,” he adds.

The urban-focused development in the past has always kept Sindh’s rural areas backward with rampant poverty, decayed public infrastructure, absence of basic civic facilities like safe drinking water, and health facilities. The existing public infrastructure is a decade old and political considerations in initiation of new schemes have caused slow development and increase in poverty.

The cash-strapped province is facing a big challenge of increasing its revenues. For the next budget, tax collection would be the main focus for the finance department of the province, particularly in the post-7th NFC Award period when the province has to also collect General Sales Tax (GST) on services, the demand of Sindh accepted by the federal government after latter’s prolonged resistance and reluctance.

The provincial government has recently announced that it would pass a bill for collecting GST on services from the next financial year 2011-12. Presently, the main income sources of Sindh government are six provincial taxes collected by its excise and taxation department, and some other levies/taxes like stamp duty, land users charges, water tax, license and tender fee collected by the Sindh Board of Revenue.

The economic team of the province will face another big challenge after transfer of major departments to the province previously listed on the federal concurrent list as a result of the 18th Amendment. The provinces have yet to make relevant laws to make these devolved departments functional after completion of the devolution process by June 2011.

About 20 ministries/divisions, and 100 autonomous bodies are to be transferred to provinces by that date, but so far 10 have been transferred to the provincial governments.

The share of the province from the NFC Award would be less this year as the federal government has already indicated to the provinces that this year they would receive 22 percent less amount in their share due to transfer of funds on security and law and order.

To meet their budget deficit the federal government has advised the provinces to impose agriculture tax in their respective provinces. But this gigantic task is another big challenge for the provinces, particularly for Sindh, where a majority of legislators are landlords and feudal chiefs.

Urban legislators, belonging to the MQM, however, have been supporting the demand for agriculture tax.

With a major share of 21 percent in over all GDP of Pakistan, the contribution of agriculture sector in the income tax is quite negligible. For example, the total collection of agriculture income tax during 2009 was Rs1.8 billion, which included Punjab’s around Rs1 billion, whereas Sindh’s share was about Rs200 million. “Agriculture contributes around Rs3000 billion in the GDP, so there is a potential of recovery of Rs300 billion as a tax,” says Dr. Shahid Siddiqui, a senior economist.

In a dismal tax recovery scenario, the major challenge for Sindh government would be to finance its development budget. Sindh’s public infrastructure was mostly damaged during heavy floods in many districts, particularly at the right bank of River Indus, including Jacobabad, Shikarpur, Kashmore-Kandhkot, Qambar-Shahdadkot, Larkana, Dadu, Jamshoro and Thatta. Over 7 million people were affected due to floods and their rehabilitation is still a big challenge for the government.

According to provincial government’s Annual Development Programme (ADP) for the next fiscal year, restoration and construction of houses, roads, bridges, and other public infrastructure will be the top priority. Water, drainage, agriculture, irrigation network, health, education, poverty alleviation, rehabilitation of flood-hit areas, and broken road networks would be included in the next financial year’s development spending.

The development budget would also focus on completion of on-going projects besides start of some new projects. Last year, Sindh government had earmarked Rs115 billion under its development plan, but that amount was slashed to Rs77 billion due to slash in annual Public Sector Development Programme (PSDP) of the federal government and diversion of funds towards flood relief.

This year the provincial government plans to keep its development budge in the range of Rs87-90 billion (with about 10 percent increase). This would include some mega projects like construction of new city, Zulfiqarabad, near Jhirk in Thatta district, providing plots to flood-affected people in each town and about Rs10 billion would be earmarked for the scheme.

The provincial government is keeping an eye on receipt of $400 million loan from the Asian Development Bank (ADB) for improvement in Sindh’s public infrastructure, particularly after floods and repair of the decades-old irrigation system.

Over 11,000 villages were affected by last year’s floods, but the provincial government has planned to reconstruct big villages with a population of more than 100 houses. 40,000 houses in 200 villages would be constructed under post-flood rehabilitation programme during the year 2011-2012, according to sources at provincial P&D Department.

Besides funding projects from its own resources, the provincial government plans to initiate projects with public-private partnership. These projects include construction of four motorways, connecting major cities of the province.

The provincial government plans to build six modern highways with public-private partnership, which will be completed in three years. A motorway linking Badin with Hyderabad city and two bridges on River Indus, one near Jhirk and the other near Kandhkot are also in the pipeline.

Through development of public infrastructure and establishing roads network, the provincial government expects to attract foreign investment, particularly in coal, wind, and solar power generation.

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