POLICY
 
 
NFC AWARD
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Fair mechanism for distribution of national resources

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From SHAMIM A. RIZVI,
Islamabad

Mar 07 - 13, 2005
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President General Pervez Musharraf's statement that the provinces share in the federal pool of revenues should be increased to 50 percent is likely to give a consensual look to the 6th award of the National Finance Commission (NFC).

The ruling Pakistan Muslim League has also proposed that the population should not be the sole criterion for determining the share of the provinces in the divisible pool. Other factors such as poverty, backwardness and special needs of smaller provinces, particularly Balochistan should also be taken into consideration while collecting provincial shares in the divisible pool.

Acceptance of these two major demands of the small provinces will lead to a consensus award which is to be announced before the budget. The magnanimity shown by the President, the ruling party and the Federal Government has ensured the resolution of the conflicting issues amicably. It would really be a historic achievement.

Despite last minute intervention of former prime minister Zafarullah Jamali in June last, the National Finance Commission failed to reach a consensus among the provinces compelling the authorities to request the President for extending the application of 5th Award for another (2004-05) year. The strict stance of Sindh and Punjab Chief Ministers on revenue collection and population could not bring any results.

Later the then Finance Shaukat Aziz played his cards in the shrewdest manner by announcing to increase the provincial share from 37 to 47 percent against a demand of 50 percent. As a result, the provinces were made to look responsible for the bickering over the formula of distribution of the divisible pool even though the federal government had not met their demand for 50:50 ratio in the distribution of proceeds between the center and the provinces.

The provinces other than Sindh have agreed that a 90 percent weightage be given to population and the remaining 10 percent to multiple factors minus revenue collection. But Sindh was adamant that revenue collection should be given some weightage also. Sindh Finance Minister Sardar Ahmed has been quoted as saying that after a lot of discussions, other provinces refused to include revenue generation in the multi-factor formula.

However, the last meeting ended without reaching any decision, the situation took an ugly turn when the Sindh nominee on the NFC, Abdul Karim Lodhi resigned in protest alleging at a press conference that the NFC was not being allowed to function in accordance with the constitutional provisions for many years. His argument was based on the fact that the constitution enjoins upon the NFC to determine the respective shares of the Federal Government and provinces from the divisible pool. But, far from that the NFC is not even given the opportunity to examine the total receipts of taxes. The Finance Ministry simply imposes its decision that the share of the provinces would be so much. This practice has reduced the NFC to a mere tool in the hands of the Finance Ministry. He went on to argue that subjects such as grants in aid to the provinces and the exercise of the constitutional borrowing powers of the federal and provincial governments are not brought to the NFC although they are on its agenda. Neither the public nor the official headquarters are even aware of these functions of the NFC.

He also pointed out that nowhere in any federation in the world is population, the sole criterion for sharing taxes between the center and the federating units. Repeated pleas by the provinces for adoption of other determinants such as underdevelopment, sparseness of population coupled with vast area and contribution to the collection of taxes, have not been paid heed to. Even Sindh's demand for a small recompense of not more than 5 percent from the 69.02 percent of the divisible taxes collected in the province has not been accepted. Besides, distribution of 2.5 percent of GST on the basis of population to compensate the provinces for the loss of revenue after octroi was abolished is another injustice to Sindh.

 

 

The issue of NFC awards must be settled in a democratic manner and in a spirit of give and take. The provinces must show flexibility in their positions and the centre should lead the way by accommodating provinces' demands. For example, the federal government's proposal to increase the share of provinces in the divisible pool falls short of provincial demands to raise their share to 50 percent from the existing 37.5 percent. The manner in which the finance ministers of the four provinces were able to put across their demands in the past meetings should be seen as a positive preparation of the ground work for the agreement that is acceptable to all.

What is required is to work towards a general agreement. History has shown us that those issues that are resolved as a result of building consensus are more long lasting. But building a consensus will be difficult task. Punjab's demand or populations as the sole criterion for allocation of resources is as unacceptable to others provinces as is Sindh's demand for revenue collection as the principle determinant for revenue sharing. An acceptable basis has thus to be worked out by agreeing on population as the primary determinant and the adding revenue collection, under-development, rural poverty, internal migration and so forth as factors warranting weight age in the matter of resource allocation among the provinces. These are some of the considerations they must be taken into account in the arriving at fair and realistic mechanism for resource sharing. The question is one of mutual understanding and accommodation in the larger national interest.