ISLAMABAD, Jan 2: The provinces have proposed to abolish the Rs20 billion subvention pool under the sixth National Finance Commission (NFC) award, provided the distribution of divisible pool is made on a 50:50 basis between the federation and its units, Dawn has learnt.

At the same time, the provinces also demanded the inclusion of another source of income in the divisible pool in the shape of taxation on petroleum products, sources in the Punjab government told Dawn.

The federal government collects around Rs45-50 billion every year on account of taxation on petroleum products. These proposals were brought forward by the provinces at the second NFC meeting that held in Lahore last month, these sources said.

The federal government had previously agreed to set up a Rs20 billion subvention pool to assist the provinces under the principle that their share would progressively increase and that smaller provinces would not suffer in case of any change in the size of resources. For this, six separate formulas remained under consideration, but no decision was made.

The federal government contributes Rs15 billion in the divisible pool to assist the provinces. Punjab contributes around Rs3.5 billion, followed by Sindh with around Rs1 billion. While the remaining amount is contributed by Balochistan and the NWFP.

The sources said the basic idea of the subvention pool was to ensure better allocation to the provinces to sustain the deficit of smaller provinces, but the new proposal would badly impact the NWFP and Balochistan. They, however, expect that if additional weightage was given to backwardness, area and poverty, their requirements could easily be met.

Sindh would also be a loser in case the subvention pool is abolished, but it would be compensated through increase in share owing to taxation of petroleum products. Punjab would be the major beneficiary of the proposed mechanism, because it would straight away save its Rs3.5 billion contribution to the subvention pool.

These sources said the federal government, which is currently in the process of getting revenue and expenditure projections from the provinces, has not yet taken a position on the proposal of doing away with the subvention pool and inclusion of taxation on petroleum in the divisible pool.

So far only the Punjab government has briefed the federal government on its revenue and expenditure projections. All the other provinces would follow suit before the third NFC meeting to be held in Islamabad on Jan 18-19.

The sources said the Centre was likely to come out with its response during the Islamabad meeting of the NFC where it would also touch the base whether it could transfer some additional responsibilities to the provinces in case their new proposals are accepted.

The NFC, they said, was rather entering into a difficult stage in view of two other areas where a deadlock-like situation had already emerged. These include net hydel profit to the NWFP and gas development surcharge (GDS) to Balochistan.