July 1, 2003	Tuesday	Rabi-us-Sani 30, 1424

KARACHI, June 30: Sindh is learnt to have sent a letter to Islamabad on Monday asking for a revision in the distribution ratios of 2.5 per cent GST collection in light of audited figures and the compensation for the last two years transfers which, it seems were less than the actual share.

Sindh has contended that the 2.5 per cent GST compensatory grant for loss of revenue does not include overhead charges. This development follows submission by Punjab of audited figures of octroi and zila tax collections during 1999-00 which have been found to be much less than the provisional figures on the basis of which the 2.5 per cent sales tax collection was being distributed among the four provinces.

Well-placed and authoritative sources told Dawn that Punjab had given provisional figures of Rs9.2 billion for octroi and zila tax in 1999-00. On the basis of these figures, Punjab’s share was fixed at 52.24 per cent of the 2.5 per cent sales tax collection. Sindh’s share was 38.37 per cent, the NWFP’s 5.03 per cent and Balochistan’s 4.43 per cent.

However, Punjab’s audited figures of octroi and zila tax collection in 1999-00 is Rs6.11 billion. This has changed the ratio shares of all the provinces, raising Sindh’s share from 38.37 to 46 per cent and lowering Punjab’s share to 42 per cent from over 52 per cent. Balochistan and NWFP respective share will increase to 6.04 per cent and 5.33 per cent.

Punjab is reported to have taken a position that its figures include the revenue collection plus overhead charges of the collection agencies.

Officials say Punjab’s audited figures were received ‘late’ in Islamabad. They also confirmed that new data does warrant a change in the distribution arrangement of 2.5 per cent sales tax collection estimated at about Rs32 billion in 2003-04.

How would this change come in distribution arrangement is a question which has more than one answer. A simple answer is that a new distribution arrangement be drawn up.

“It is primarily an issue of National Finance Commission (NFC) and would be taken up at appropriate time,” an officer in the NFC directorate told this correspondent by telephone on Monday. He reminded that the NFC is now left with two tasks only. One is the issue of NWFP share in hydel electricity profits and second is the distribution formula of 2.5 per cent GST collection estimated at Rs30 billion in 2002-03.

Sindh’s finance minister Syed Sardar Ahmad in his budget speech has not given figures of resources transfer from 2.5 per cent GST collection. He simply said that actual transfer from sales tax collection has come down from Rs10 billion to Rs8.88 billion in 02-03.

Octroi and zila tax was abolished by the Nawaz Sharif government in 1998, some claim unconstitutionally, through an Inter-Provincial Coordination Committee (IPCC) in Peshawar. Octroi and Zila tax were abolished on complaints of the Punjab business community. But this decision hurt Sindh and particularly the Karachi Metropolitan Corporation most. The then KMC’s bulk resources came from octroi.

To bridge the gap in revenue receipts the federal government raised the rate of sales tax from 12.5 per cent to 15 per cent in 1999. It pledged that the loss of revenue of local bodies would be met from 2.5 per cent increase in the GST. In 1999 Sindh government worked out total revenue loss of Rs8 billion on abolition of octroi and zila taxes and demanded compensation. The formula worked out by Islamabad was said to be very complicated. According to this formula the federal government provided 80 per cent and provincial government was asked to contribute 20 per cent.

However, the very first year Islamabad breached its commitment and Sindh was not compensated for Rs8 billion losses. Even the commitment of 80 per cent grant was reduced to 79 per cent. Islamabad reduced its share from Rs6.4 billion to Rs6.3 billion. It was further reduced to Rs4.52 billion in 00-01. Historical growth trend of octroi and zila are 15 per cent a year. On this basis alone, Sindh expects a share of about Rs11 billion from the GST compensatory grant.