Pakistan made 'meaningful' progress in fiscal federalism, but deviations remain: WB

Pakistan has made “meaningful” progress on fiscal federalism since 2010; however, deviations from “international norms” and “good practices” remain, including in the current federal–provincial transfer arrangements, the World Bank said in a report released on Tuesday. In its report titled “Strengthening Fiscal Federalism in Pakistan”, the WB highlighted four critical dimensions in which Pakistan lacked in terms of fiscal federalism. “First, expenditure assignments remain incompletely implemented and inadequately defined in some areas,” the report said and highlighted that the government continued to “operate” in constitutionally devolved areas despite the 18th Constitutional Amendment. It added that the involvement had caused waste and blurred “accountability”, while local governments lack clearly defined or adequately resourced functional mandates. It also pointed out that the 18th Amendment had caused “fragmentation” of the tax system. “While the Amendment strengthened provincial tax authority, particularly over General Sales Tax (GST) on services, it also split the tax base between five competing jurisdictions,” the report added, adding that complexity led to higher compliance costs, discouraged inter-provincial trade and constrained aggregate revenue performance. It noted that tax bases, especially agricultural income and property, remained “significantly underutilised”. The report pointed out that the existing federal–provincial transfer arrangements, such as the National Finance Commission (NFC), had failed to achieve “important policy objectives”. It noted that while the NFC provided “predictability and protected provincial revenue shares”, this financing had not translated into functional outcomes. “The current framework reduced federal resources without a commensurate adjustment in expenditure responsibilities, driving a structural federal fiscal deficit,” the report read. The report maintained that NFC’s horizontal distribution had not achieved “genuine fi