44.6 per cent share to the province from the federal divisible pool



Sep 23 - 29, 2002



The National Finance Commission, in its fourth meeting at Peshawar on Saturday last, finalised the outline of its recommendations for the 6th NFC award enhancing significantly the share of the provinces from the federal divisible pool. The 4th meeting presided over by the Federal Finance Minister, Shaukat Aziz, and attended by all the provincial Ministers succeeded in developing a consensus on the thorny issues.

The Finance Minister, on his return to Islamabad, told newsmen that the government has agreed to offer an "unprecedented 44.6 per cent share" to the provinces from the Federal Divisible Pool in the 6th National Finance Commission (NFC) award. "For the first time, we will be extending roughly 44.6 per cent share from the federal divisible pool to the provinces in the new NFC award, and this is something unprecedented," he said an initial agreement had been reached in the meeting in Peshawar that the federal government will retain 60 per cent share while 40 per cent will be offered to the provinces. "But if you calculate the new amount of Rs.20 billion subventions and another Rs.30 billion to be paid from 2.5 per cent General Sales Tax (GST) income to the provinces, the total share of the provinces would reach a substantial 44.6 per cent." The next NFC meeting, to be held in the first week of October in Islamabad, would finalize the new award, he added.

Continuing, he said, "We want to finalize everything as quickly as possible with a view to removing the grievances of smaller provinces. All the controversial issues were likely to be settled over after the October elections."

According to a handout, issued after the meeting, said that a general consensus was reached between the federal government and the four provinces on the distribution of the divisible pool of federal taxes between the centre and provinces. Additionally, an agreement was also arrived at regarding the amount of the subvention fund to be released to the provinces. However, the decisions taken at the meeting, it was reported, would be discussed by the provincial finance ministers with their governors before the next meeting of the NFC to draft the final recommendations for the Sixth NFC Award. No date for this meeting has bees indicated. The near-conclusion of the NFC deliberation could be seen as an encouraging progress as the Sixth Award has already been delayed. The sooner the recommendations are formalised the better it will be for the provinces to firm up their current year's budgetary proposals which also include distribution of allocations to the district governments.

The NFC present ratio of 37.5 per cent in the federal divisible pool of taxes as share of the provinces. It was however proposed that the next or Seventh NFC Award might increase the share of provinces to 40 per cent. An important decision was the substantial increase in the subvention fund to Rs.20 billion from the previous level of Rs.8.4 billion and Sindh would, as a new claimant, receive an estimated amount of Rs.7.5 billion in the current financial year from this fund in addition to its share in the divisible pool. The NWFP and Balochistan are likely to receive substantially higher amounts as subvention, Compared with the total amount of Rs. 8.5 billion shared by these two provinces last year, they would be sharing Rs.12.6 billion between them this year. This increase in the subvention agreed to by the federal government appears to reflect a compromise formula, leaving untouched certain contentious issues being pressed by the smaller provinces.

The major demand of the smaller provinces was a change in the very yardstick of the distribution of divisible pool of taxes from population to other factors such as the backwardness of a province, its area, and its contribution to total tax mobilisation in the country. This issue, according to news reports, would be taken up by the next elected governments at the centre and the provinces during discussions for the Seventh NFC Award. Meanwhile, a study group is reported to have been constituted with a view to address the demand for change in the distribution of smaller provinces in meeting their resource gap. It is to be seen whether the population formula for the sharing of the divisible pool of taxes would remain intact or would be replaced in the next award.

Responding to various questions by the newsmen the Finance Minister said the new NFC resource distribution formula will be applicable from the next financial year. He admitted that there were some differences between the NWFP and Wapda over the issue of hydel power generation income. "We have proposed to them to have arbitration to resolve the issue". He expressed the hope that both the NWFP and Wapda would resolve their differences, so that everything was settled in the final NFC meeting.

He told a reporter that Sindh, for the first time, would be getting considerable subvention to improve its financial affairs. "But we have told the Sindh authorities that the amount of subvention should got to the rural areas to improve the lot of the poor," he said.

To another question, the finance minister said the provinces have been allowed to seek direct funding from the international donors for which the federal government will stand as guarantor.

However, he said the federal government will monitor the development activities in provinces with a view to ensuring prudent and transparent functioning of the provincial governments. He was asked why Punjab had not been offered subvention in the proposed NFC award although there was extreme poverty in the southern Punjab. "The province of Punjab is relatively comfortable. Therefore, it will not get any subvention," the Finance Minister said, adding that the representative of Punjab at the Peshawar meeting did not raise the issue.