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.