December 15, 2003	Monday	Shawwal 20, 1424

The National Finance Award is a periodic exercise, wherein the National Finance Commission recommends distribution of revenues out of the Divisible Pool between Islamabad, Lahore, Karachi, Peshawar and Quetta.

The NFC Award 2003 would be announced by the President for a period of five years. Though, the 1990 Award expired in 1996, but the distribution of resources continued under it till the promulgation of the new Award in January 1997.

BALOCHISTAN CASE: Under the NFC Award 1990, there were six fundamental financial features for Balochistan:

1. Straight transfers — excise duty and royalty — under the Act 161(1)of the Constitution continued to the extent provided under the previous NFC Award.

2. The net proceeds of development surcharge on natural gas agreed to be transferred to the provinces, including, Balochistan and distributed on the production basis at well heads, after deducting the collection charges of 2 per cent.

3. Under the NFC Award 1990, the Divisible Pool was enhanced. Now the Divisible Pool consists of income and corporation tax, sales tax, export duty on cotton, excise duty on sugar, excise duty and royalty, as well as, development surcharge on natural gas.

4. Subventions of Rs100 million for Balochistan from July 1991, for three years.

5. Distribution of the Divisible Pool was fixed at 20 per cent share for the federal government. Remaining 80 per cent was to be distributed among Punjab, Sindh, the NWFP and Balochistan on population basis after deduction of 5 per cent collection charges, and 1.35 per cent as Federal emoluments. The Provincial Shares were distributed on the basis of 1981 census. As such, Balochistan received 5.3 per cent of the net Divisible Pool.

6. Under the NFC Award 1990, grants for Balochistan strategic roads and agency functions continued, till the NFC Award ‘96.

THE NFC AWARD 1996: An approach for using the national resource picture concept was introduced in the NFC Award 1996 deliberations. This concept involves projecting tax and non-tax revenues of federal and provincial governments combined. Such concept added on to these funds that became available through borrowings to finance the targeted national budget deficit. Such combined concept aided in making expenditure projections for both levels of government, consistent with the available national resources.

The 1996 Award’s salient features:

1. Straight transfers including the gas development surcharge (GDS) are out of purview of the Divisible Pool, as they are provided directly to Balochistan and other provinces. Receipts related to Royalty, Excise Duty and GDS have been termed as part of the straight transfers. That is, they are not termed as part of the pool of federal taxes. These are transferred to the province, directly. This continues to be so, as the case was in 1990 NFC Award. Much higher projections were made during 1990 Award, which did not materialize during the 5-year period. In fact, lower growth rate was reflected in the NFC Award ‘96, so that Balochistan could benefit from higher rate of growth, minimum was reflected.

2. Balochistan’s share in the net proceeds of the expanded Divisible Pool of taxes was fixed at 3.75 per cent. From this, it could get its share on the basis of 1981 population census, which came to 5.3 per cent.

3. Over and above the normal share, based on population, subvention of Rs3,310 million were to be provided from the federal share. The subvention had been committed to grow by 11 per cent subject to subsequent adjustments in line with the actual rate of inflation for each year. Normally, the rate is higher than 11 per cent. With any increase in inflation over and above the 11 per cent threshold, the subvention would be higher than calculated on the basis of 11 per cent according to the NFC Award ‘96.

4. The NFC Award ‘96, envisages a clause that as soon as the population census is conducted, the distribution shall have to be, on the basis of population figures, so arrived at. Now Balochistan’s population has been estimated at about 6.44 per cent of the total population. With renewed population figure the share of the province should have risen to 6.44 per cent of Pakistan’s population.

It did not so happen. Rather the share fell further, causing a deficit of Rs2.47 billion in the provincial budget. This is due to two factors. One, diminution in the Divisible Pool of taxes due to low population of the province. In 1998, sample Pakistan population census was conducted, which brought down Balochistan’s population ratio to 5.1 per cent from 5.3 per cent. The fall in figure was due to the boycott of the population census by the politically-motivated section of certain areas. Such boycott decreased the province’s share in federal divisible pool, when calculated in 1998. As such, the province has been constantly suffering from an annual loss of Rs400 million in its share of the Federal Divisible Pool.

The population of Balochistan was estimated at a very low level which caused a colossal loss of Rs1-1.5 billion.

APPREHENSION: It is apprehended that the annual loss of Rs400 million in the Federal Divisible Pool might be enhanced when the NFC takes up fresh exercise of resource distribution among the provinces during FY 2003-04.

After the takeover in 1999, the government announced a new National Finance Commission. The Commission constituted a committee, which chalked out a formula for general consensus on the new NFC Award. But later, it deferred the Award for Jamali government which has come out with a restructured Commission.