21 February 2004	Saturday	29 Zilhaj 1424

KARACHI, Feb 20: The federal government has indicated to offer 45 per cent of the divisible pool of federal taxes to the provinces, as against their demand for a 50-per cent share.

Well-placed and authoritative sources informed Dawn on Friday that except for two issues on distribution of resources between the federation and the provinces and between the provinces all other matters had been settled.

The sources said that whatever the arrangement for distribution of resources the provinces would get more than what they were getting under the present dispensation of controversial 1997 NFC award.

"Provinces are coming out with divergent views on distribution of resources among themselves," the sources said, obliquely referring to the demand of three provinces - Sindh, Balochistan and NWFP - that want multiple criteria for resources distribution. Punjab, however, insists on maintaining population the only basis for resources distribution among the provinces.

"There is no consensus either on vertical or horizontal distribution of resources," a source in Karachi pointed out. He said that all the four provinces had made a unanimous decision seeking 50 per cent of the divisible pool of federal taxes, and asked the federal government to retain only 50 per cent.

As against this demand, Islamabad has conceded to offer only 45 or 46 per cent share in the pool. Similarly, the provinces are offering not only divergent but conflicting proposals on horizontal distribution of resources among themselves. "So where is the consensus?" the sources said.

The provinces also want the federation to charge only 1.8 per cent tax collection charges and not five per cent that is being charged for last more than 27 years.

Yet another contentious issue to be resolved among the provinces is distribution arrangement of 2.5 per cent sales tax among the provinces. The federal government abolished octroi and zila tax in 1999. It has increased sales tax rate from 12.5 per cent to 15 per cent and decided to offer 2.5 per cent as compensation in lieu of octroi and zila tax.

Punjab provided inaccurate figures and received more than 50 per cent of this 2.5 per cent sales tax. Latest audited figures showed that Punjab's share is hardly 42 per cent. The three other provinces that suffered in the last three years want a compensation.

There is also the issue of sales tax on services. The federal government has been collecting this tax and has made it a part of the pool and is distributing this collection on the population basis.

At present sales tax is being collected on six services. A few of these services are shipping agents, ship stevedores, courier services, clubs, hotels and financial services.

Karachi has port and the only place for services connected with shipping. Karachi is the hub of financial services and other activities. There is a demand that collection of sales tax on these services be given to the area from where it is generated.

Another issue is federal government's loan on provinces. The federal government recovers 18 per cent interest on loans that have been advanced to the provinces.