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Politics & Policy

Politics & Policy
Centre -   province

For the record  
ATM based networking
Dr. Matin A.Khan
Special Report
Cotton trade
A bugs life !!!

Prof. Dr. Khawaja Amjad Saeed
Oct 11 - 17, 1999

Pakistan follows Federal Structure. Maintaining harmonious relations between the Federal Government and Provincial Governments is a pre-requisite for stability and strength of Pakistan. The relationships have many angles. The 1973 Constitution of Pakistan lays down various provisions governing the above relationship. However, this piece looks at Financial Front.

Constituents of the paper

The paper has been divided into the following seven aspects:

1. Perception Problems

2. Constitutional Position

3. Inretrospect

4. Revenue Order: 1971

5. National Finance Commission: 1974

6. Provincial share in Federal Receipts: NFC Award 1996

7. Development Expenditure: ADP allocations for 1999-2000

Perception problems

The misfortune is that all the four provinces of Pakistan do not share favorable perceptions relating to sharing of divisible pool and being recipients of development grant. An effective communication between the Federal and the Provincial Governments is the crying need of today. At times, adequate funds are allocated but their utilization is not fully ensured. Moreover, there is a need to have a fresh look at the formula on the basis of which funds are allocated by the Federal Government to Provinces.

Constitutional position

Article 160 of the Constitution deals with National Finance Commission (NFC). It lays down that within six months of the commencing day and thereafter not exceeding five years, the President of Pakistan shall constitute a NFC. It consists of Minister of Finance of the Federal Government, the Ministers of Finance of the Provincial Governments and such other persons as may be appointed by the President after consultation with the Governments of the Provinces.

It shall be the duty of the National Finance Commission to make recommendations to the President as to:

a) the distribution between the Federation and the Provinces of the net proceeds of the taxes mentioned in clause 3;

b) the making of grants-in-aid by the Federal Government to the Provincial Governments;

c) the exercise by the Federal Government and the Provincial Governments of the borrowing powers conferred by the Constitution; and

d) any other matter relating to finance referred to the Commission by the President.


The Provincial Governments share in Central Divisible Pool by the following Awards in the past:

a) Raismen Award

This covered period from October 14, 1955 to June 30, 1961.

b) Distribution of Revenues Order 1968

This covered period from July 01, 1961 to June 30, 1965

c) Distribution of Revenues Order 1965

This covered period from July 01, 1965 to June 30, 1970


Revenue order 1971

(Presidential Order No. 10 of 1971)

The basis on which the distribution of divisible pool to Provincial Governments was as under:



1. Taxes on income including corporation tax but not including taxes on income consisting of remuneration paid out of the Federal Consolidated Fund 80

2. Duties of excise on tea, tobacco and betelnuts 80

3. Taxes on sales and purchases 80

4. Export Duty on Cotton 80

5. Wealth Tax on immovable property 100

6. Estate Duty on agricultural land 100

At that time, the following percentages of population were used for distribution of divisible pool to provinces:




1. Punjab 56.5

2. Sindh 23.5

3. NWFP 15.5

4. Baluchistan 04.5



National finance commission 1974

The President of Pakistan accepted the recommendations of NFC set up in 1974 and these were announced in 1975. The distribution pattern was as under:

a) 80% on population basis.

b) Net proceeds were distributed from Income Tax, Sales Tax and Cotton Export Duty.

c) Special subventions were approved namely;

NWFP Rs. 100 million

Baluchistan Rs. 50 million


Provincial share in federal receipts

Composition of Divisible Pool

NFC Award 1996 was enforced w.e.f. July 01, 1997. Divisible Pool consisted of the following eight sources of revenue:

1) Taxes on Income

2) Wealth Tax

3) Capital Value Tax

4) Taxes on Sales and Purchases

5) Export Duty on Cotton

6) Custom Duty

7) Federal Excise Duty (excluding the excise duty on gas charged at well head); and

8) Any other Tax which may be levied by the Federal Government.

Break-up of amount to each Province is tabulated below:


Table No. 1

Province - Wise Break up of Divisible Pool: 1999-2000

Province Rs. b %

1. Punjab 74 54

2. Sindh 35 25

3. NWFP 17 12

4. Balochistan 12 9

138 100


Source: Extracted from Federal Budget in Brief: 1999-2000, Islamabad: Government of Pakistan, Finance Division, pp 19.


Divisible Pool Distribution

The amount for distribution out of divisible pool is calculated after deducting 5% as collection charges. Based on the formula laid down in the Distribution of Revenue and Grants-in-Aid Order 1997, the distribution of divisible pool is as under:


Table No. 2

Distribution of Divisible Pool

Particulars %

1. Federal Government 62.50

2. Four Provinces 37.50


Source: Extracted from Federal Budget in Brief: 1999-2000, Islamabad: Government of Pakistan, Finance Division, pp 19.


Details regarding the distribution of components of various taxes etc. are tablulated below:


Table No. 3

Divisible Pool Allocation: 1999-2000

Particulars Rs. b %

1. Income Tax 42 30

2. Sales Tax 34 25

3. Custom Duties 23 17

4. Federal Excise 22 16

5. Others (Surcharge on gas, excise duty on gas, royalty on gas, on crude oil, wealth tax and capital value tax) 17 12

138 100


Source: Calculated from Federal Budget in Brief: 1999-2000, Islamabad: Government of Pakistan, Finance Division, pp 20.

Instead of following population as basis, it is suggested that a basket with appropriate weights be used. This is important as Baluchistan's area is 42% of Pakistan, while its population is 5%. Suggested weights are as under:


Basis Weight (%)

1. Population 70

2. Area 20

3. Other Considerations 10


The above weights will replace the adhoc basis on which allocation are now made.

Development expenditure

It is a misfortune that 1973 Constitution of Pakistan does not lay down any guideline for allocations to provinces from Annual Development Programme. ADP 1999-2000 allocations to various provinces by the Federal Government are tabulated below:


Table No. 4

ADP 1999 - 2000: Allocation to Provinces

Provinces ADP Allocation Province-wise share in Divisible Pool: 1999-2000

Rs. b %



1. Punjab 12.2 43 57.88

2. Sindh 6.7 23 23.28

3. NWFP 4.9 17 13.54

4. Balochistan 5.0 17 5.30

28.8 100 100.00

Source: Edited from Federal Budget in Brief: 1999-2000, Islamabad: Government of Pakistan, Finance Division pp 19-21.


It is suggested that an effective dialogue between the Federal Government may be held to develop a comprehensive and total consensus so that the foregoing suggested basket of weights may be favorably considered for a fair and equitable distribution of divisible pool. Guidelines for a fair basis of distributing the Federal ADP to various provinces may be included in the 1973 Constitution of Pakistan.

Dean: Executive Programs, Punjab College of Business Administration, Constituent College of Mohammad Ali Jinnah University.

President, Institute of Cost and Management Accountants of Pakistan.

Member Governing Council, International Federation of Accountants.