Following the unanimous resolution of Sindh
Provincial Assembly, signed by both leader of the house and the leader
of opposition, rejecting the formula of distribution of Federation and
the Provinces outlined in the 6th NFC Award, the Federal Ministry of
Finance has shelve the proposed award.
In a rare unanimity shown, the Sindh Assembly
rejected with one voice the "erratic distribution of federal
revenues" between the Federation and the Provinces. Demanding a new
National Finance Commission the assembly resolution suggested a new
formula for sharing the divisible pool.
The National Finance Commission in its fourth meeting
in September 2002, had finalised its recommendations for the NFC award
providing a big jump in the provincial shares in the divisible pools.
The NFC 4th meeting held in Peshawar was presided over by the then
Minister for Finance Shaukat Aziz and was attended by the Finance
Ministers and Finance Secretaries of all the federating units. The
outlines of the 6th award were finalised. Describing it as
revolutionary, Mr. Shaukat Aziz had informed newsmen that the federal
government had agreed to an unprecedented 46.4 per cent share to the
provinces from the federal divisible pool. Making this announcement at a
press conference in Islamabad, Mr. Shaukat Aziz said, "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 46.4 per cent". The next NFC
meeting, to be held in the first week of October in Islamabad would
finalize the new award, he added.
The Chief Executive Gen. Pervez Musharraf, however,
withheld the announcement of the 6th award till the elected government
come to power.
The new formula of distribution of divisible pool
suggested in the unanimous resolution of the Sindh Assembly stipulates
that the provinces and not the federation would determine the share of
the latter in accordance with their respective populations. Under the
current formula the federation retains 62.5 per cent of the resources
from the divisible pool and allocates the rest among the provinces in
accordance with their populations.
It was also suggested during debate that the share of
the provinces he raised to 55 per cent while the remaining 45 per cent
should go to the federation totally ignoring the fact that in view of
defence and debt burden on the federation this would not be enough to
meet the requirement.
Sindh has long been unhappy with the NFC award and
wants the next NFC to develop its Award for the next five years starting
July 2003, which would require the federal government to credit the net
proceeds of taxes collected from various provinces into their accounts
after deducting five per cent collection charges and payment of three
and two per cent respectively to Balochistan and the NWFP as subvention.
Each province would then contribute to the federation in accordance with
its population, which would in effect be 45 per cent of the total net
taxes collected by all the four provinces put together.
This formula would immediately bring Punjab under
pressure because population-wise it is bigger than all the three
provinces put together. Of the total 145.44 million population nearly 81
million live in Punjab. So, its contribution to the centre's share of
the net taxes collected would have to be about 55.34 per cent of its
collection. What it would be left with would certainly not be enough for
taking care of the needs of its large population. On the other hand,
Sindh with a population of 33.55 million would be required to contribute
only 23.06 per cent of its total collection, which in the year 1999-2000
was Rs.189.46 billion. This means that if the 1997 NFC had developed its
Award according to the newly recommended formula, Sindh would have kept
for itself 76.94 per cent of this amount or Rs.145.77 billion, whereas
that year Sindh actually received only Rs.24.80 billion as its share.
Since the NWFP has only 13.42 per cent of the total population and
Balochistan 5.35 per cent, their contributions to the federal revenues
would not be so high as to make them destitute and perhaps the two would
no more need the subvention they receive from the divisible pool. Still,
their overall backwardness is such that the two provinces would be
needing extra help for many years to come.
The provinces have also been aggrieved of not
receiving even their allocated share in full. For example, the Sindh
Assembly was informed that the province had been short-changed by 68 to
80 billion during the last four years. Likewise, NWFP has constantly
complained of not receiving its due share of the hydel profits while
Balochistan is rueful of inadequately computed gas royalty and, of
course, delayed payments.
All these and other related issues have strained the
federation since the expiry of the last NFC award in 1997. The military
government did move towards a new award but decided to leave it for the
elected government. This was perhaps wise as the issue is more political
than fiscal or technical and is best settled by elected governments
through a political discourse — particularly so because while the
provinces are united and keen to receive a bigger chunk of the pie from
Islamabad, they disagree strongly on the criteria for determining their
respective shares. Population, thus far the sole basis is no longer
acceptable to the smaller provinces. Other determinants like
resource-generation, geographical sprawl, backwardness and fiscal
discipline will have to be factored in. All this boils down to very
tough negotiations on a very sensitive issue and hence, Islamabad's
tendency to temporise. But the issue being too self-evidently important
to be ignored, the Jamali government needs to fulfill it constitutional
obligation by immediately constituting the National Finance Commission
so that the orduous negotiation can be completed and the new award
should be crafted before the next budget.