ISLAMABAD, Feb 15: The provinces have agreed that the existing share of any province in the net proceeds of the federal divisible pool will not be reduced in the sixth NFC award even though the distribution criteria will be changed significantly.

Authentic sources told Dawn that an understanding had been reached among the provinces to work out "an equalizer" based on a combination of factors like area, population, revenue generation capacity and backwardness.

An NFC member said at least three formulas were being discussed by the provinces at present to arrive at a consensus agreement or to come up with an equalizing factor. "However, there is an agreement on the guiding principle: the existing share of any province, particularly of the smaller provinces, should not be affected negatively whatever may be the final distribution criteria," the member added.

Distribution of funds from the federal divisible pool among the provinces currently takes place on the basis of population which benefits Punjab. Other provinces have been demanding that due weightage should also be given to revenue, poverty and area.

The sources said the parties were close to a consensus formula on the distribution of provincial share and the provincial finance ministers were expected to give it a final shape on Feb 19, so that it could be approved by the NFC meeting on Feb 20 in Peshawar.

The sources said although the federal government had not yet made a commitment that it would increase the provincial share in the divisible pool to 50 per cent from the previous 37.5 per cent, it had indicated that the share could go up to this level. "If it goes beyond 50 per cent, we would welcome it," said a provincial finance minister.

He said the federal finance minister's statement was on record that the provincial share would not be less than 45 per cent and the federal government was ready to increase it further. "We believe that the centre is willing to round off provincial share at 50 per cent," he said.

"I expect that population would be given around 50 per cent weightage, while area, poverty and revenue would make the other 50 per cent when it comes to the sharing of resources among the provinces," said the provincial minister.

Under the previous NFC award, the provincial share in the divisible pool was worked out on the basis of their population in the percentages fixed in the distribution of revenues and grants-in-aid in the order of 57.36 per cent to Punjab, 23.71 per cent to Sindh, 13.82 per cent to the NWFP and 5.11 per cent to Balochistan.

The NFC meeting held last month in Islamabad had already increased Balochistan's population weightage to 5.12 per cent and reduced Punjab's ratio to 57.35 per cent by correctly rounding off the population figures.

Balochistan's share was 5.114784 per cent and rounded off at 5.11 per cent. It has now been fixed at 5.12 per cent. Similarly, Punjab's share is 57.350534 per cent but erroneously rounded off at 57.36 per cent. It has now been fixed at 57.35 per cent.

Under the previous award, taxes on income, wealth tax, capital value tax, taxes on sales and purchase of goods, export duty on cotton, customs duty, federal excise duty, excluding the excise duty on gas form part of the divisible pool.

The net proceeds of the divisible pool are arrived at by deducting five per cent collection charges (except income tax where it is six per cent) by the federal government. The federal share in the net proceeds of the pool is 62.5 per cent.

The royalty on crude oil and development surcharge on natural gas, after deducting two per cent collection charges, is transferred to the provinces on the basis of well-head production. The provinces' demand for including taxation on petrol in the divisible pool has already been turned down by the centre last month.

The royalty and excise duty on natural gas after deducting two per cent collection charges is also transferred to the provinces under Article 161 (1) of the Constitution.

Last year, the centre had transferred Rs193 billion to four provinces as their share in the divisible pool. This included Rs96.15 billion to Punjab, Rs57.3 billion to Sindh, Rs22.3 billion to the NWFP and Rs17 billion to Balochistan.

The estimated provincial share in the divisible pool for the current year is Rs215 billion. As such, the share of Punjab would increase to Rs107 billion, followed by Rs66 billion to Sindh and Rs25 billion to the NWFP. Balochistan's share has been estimated to remain static at Rs17 billion during the current year.