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  ECONOMY WATCH

Selected by Zeeshan Ahmed Khan
Oct 03 - 09, 2005

FEDERAL REVENUE DISTRIBUTION

Provinces' share in federal revenue (horizontal share) is always been a very debatable topic in Pakistan. Punjab constituting 56% of total population wants the distribution on population basis. Sindh, with highest per capita income among provinces wants revenue collection to be the criteria. NWFP insists on giving weight to poverty, while Balochistan constituting more than 43% of total area of the country claimed that revenue should be distributed on area. In 1974, Zulfiqar Ali Bhutto's NFC Award settled population to be the criteria of revenue distribution and which is valid to date.

PROVINCIAL SHARE IN FEDERAL REVENUE RECEIPT:

According to NFC Award, effective from July1, 1997, the federal divisible pool consists of following items:

1) Taxes on Income
2) Wealth Tax
3) Capital Value Tax (CVT)
4) Taxes on sales and purchases of goods.
5) Export duty on cotton.
6) Custom Duty
7) Federal Excise Duty
8) Any other tax that may be levied by Federal Government.

The share of provinces in divisible pool is distributed on basis of population and its percentage is fixed in the Distribution and Grants-in-Aid (Amendment) Order, 2002. According to the formula defined, Punjab receives 57.36%, Sindh 23.71%, NWFP 13.82% and Balochistan 5.11%. The Budget 2005-06 shows that Punjab will receive Rs.143,566mn, Sindh Rs.86,408mn, NWFP Rs.34,139mn and Balochistan will get Rs.20,205mn.

PROVINCES SHARE IN FEDERAL REVENUE RECEIPTS

(Rs. in Million)

CLASSIFICATION

2004-05 BUDGET

2004-05 REVISED

2005-06 BUDGET

Income Tax

61463

61829

72580

CVT

232

819

1425

Sales Tax

87709

84111

103633

Federal Excise (net of gas)

14712

17460

19126

Custom Duties

36765

40577

43178

Royalty on crude oil

3884

5476

5418

Royalty on natural gas

12416

12460

14036

Surcharge on gas

14723

14439

16286

Excise duty on Gas

4316

5283

5599

GST on services

2940

2842

3038

Total

239157

245295

284319

PROVINCE-WISE SHARES

Punjab

120334

122790

143566

Sindh

72678

75838

86408

NWFP

28525

29197

34139

Balochistan

17620

17471

20205

THE NATIONAL FINANCE COMMISION (NFC) AWARDS:

In 1951, Sir Jermy Raisman announced Federal Revenue Distribution Award under which East Pakistan received 45%, Punjab 27%, Sindh 12%, NWFP 8%, Bahawalpur 4%, Khairpur 0.6%, Balochistan states union 0.6% and princely states 2.8%. Then Ayub Khan's government announced first NFC award in 1961-62. The award shifted a portion of sales tax to the provinces, which was the major source of revenue at that time. Sales tax was in full consent of provinces before the independence but was federalized in 1947-48. From first to last, almost every award has increased the provinces' share. In 1951, this share was 12.8%, in 1961-62 23.1%, in 1964 27%, in 1970 33.4%, in 1974 29.8%, in 1990 35.3% and in 1997 37.3%. As per one of the agenda of President Musharraf's government, to increase the inter-provincial harmony, he wishes to take provincial share to 50%. It is believed that provincial share would be in the range of 47% to 48.5% in next NFC.

REVENUE-SHARING ARRANGEMENTS UNDER VARIOUS NFC AWARDS

(Provincial share in percentages)

DIVISIBLE POOL

RAISMAN 1951

NFC 1961-62

NFC 1964

NFC 1970

NFC 1974

NFC 1990

NFC 1997

A. Income Tax & Corporation Tax

50

50

65

80

80

80

37.5

B. Other Direct Taxes

           

37.5

C. Sales Duty

50

60

65

80

80

80

37.5

D. Excise Duty

           

37.5

- Tea

50

60

65

80

-

-

 

- Tobacco

50

60

65

80

-

80

 

- Sugar

-

-

-

-

-

80

 

- Betelent

50

60

65

80

-

-

 

E. Export Duties

           

37.5

- Cotton

-

100

65

80

80

80

 

- Jute

62.5

100

65

80

-

-

 

F. Import Duties

           

37.5

G. Estate/ Succession Duties

-

100

-

100

-

-

37.5

H. CVT on Immovable Properties

-

100

-

100

-

-

37.5

I. Petroleum Surcharge

           

100

J. Gas Development Surcharges

           

100

Div. Pool Transfers as % of Fed. Tax Revenue*

12.8

23.1

27

33.4

29.8

35.3

37.3

From 1951 to date, the average share of provinces in NFC awards is Punjab 58.4%, Sindh 23.2%, NWFP 14.4% and of Balochistan is 4%.

ASSIGNED SHARES TO PROVINCES UNDER NFC AWARDS

 

RAISMAN 1951

NFC 1970

NFC 1974

NFC 1990

NFC 1997

Punjab

59

57

60

58

58

Sindh

24

23

23

23

23

NWFP

15

16

13

14

14

Balochistan

2

4

4

5

5

Total

100

100

100

100

100

 


 

REVENUE-SHARING FORMULA UNDER NFC AWARDS

AWARD

TAX

SHARING CRITERIA (WEIGHT)

RAISMAN 1951

Sales Tax

Collection (100%)

 

Income Tax & Excise duties

Preassigned Shares (100%)

 

Export Duties

Preassigned Shares (100%)

NFC 19611962

Sales Tax

Collection (30%)

NFC 1964

 

Preassigned Share (70%)

NFC 1970

Others Taxes

Preassigned Shares (100%)

NFC 1974

All Taxes

Population (100%)

 
 

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