KARACHI, March 24: The Sindh government is seriously considering not to participate in the last decisive meeting of the National Finance Commission being held at Quetta next Wednesday (March 31). The province feels that its voice for a just and fair distribution of national revenue is not finding any receptive ear either in Lahore or Islamabad.

A well-placed source in the Sindh government disclosed that Sindh Finance Minister Syed Sardar Ahmad had come back completely disappointed and frustrated from the last informal NFC meeting held on Saturday (March 20) at Islamabad where Punjab refused point blank to accept any principle of multiple criteria for the distribution of national resources.

On Wednesday morning a telephonic message from the finance ministry in Islamabad conveyed clearly to Sardar Ahmad that the federal government will offer only 46 per cent of the share of the divisible pool. This message had proved to be virtually the last straw on the camel back and there is a serious thinking in the Sindh government secretariat of what's the fun in hearing long sermons from Finance Minister Shaukat Aziz.

Repeated efforts made to contact Sardar Ahmad proved futile, but those who are close to him say that the finance minister was giving his assessment of the NFC proceedings to the Sindh chief minister, the governor and to the think-tank of the Muttahida Qaumi Movement (MQM).

Mr Ahmed attended the informal NFC meeting last Saturday at Islamabad where, according to the source, Punjab insisted on retaining population as the only basis of resources distribution. The Punjab finance minister distributed the position paper of his government on the issue of resources distribution at the Islamabad meeting last Saturday.

The Sindh finance minister is expected to contact the finance ministers of other provinces to find out their reactions on getting only 46 per cent share from the divisible pool in the next NFC award.

According to the source, the 46 per cent share of the divisible pool included Rs36.4 billion collection of a 2.5 per cent GST that in fact was exclusively for the provinces outside the divisible pool for compensation of the losses they suffer on account of abolition of octroi and zila tax. There will be henceforth no subventions and grants for the provinces which Balochistan and NWFP are getting.

NWFP has already made it clear that it would not accept any NFC formula that does include its share in hydel power profits. For all practical purposes, the NFC is heading towards a dead end that benefits Punjab only.

The Sindh assembly is also expected to take notice of the federal government's decision. While a formal reaction of the Sindh government is still awaited. The big and small political parties in Sindh are expected to make the NFC award a big political issue.

"There is bound to be a massive public outcry against the federal government and Punjab," a well-known leader of a political party with a big representation in the Sindh and National Assembly told Dawn. He requested not to disclose his name as his party will discuss this issue in its working committee session to be held very soon.

The Sindh government source recalled that till 1998, the GST rate was 12.5 per cent. It was raised to 15 per cent in 1998 on the plea that 2.5 GST collection would be given to the provinces to compensate them for octroi and zila tax losses.

He estimates a collection of over Rs36.4 billion on account of 2.5 per cent GST in the current fiscal year 2003-04, which is seven per cent of the tax collection. "Now if the federal government includes 2.5 per cent GST in the 46 per cent share allocated for provinces then the real share comes to only 37 per cent," he said.

The provinces were expected to give their audited accounts of octroi and zila tax collection to the Centre so that equal amount of compensation could be given to them from the 2.5 per cent GST. Punjab did not give any audited accounts and enjoyed the share much in excess of its actual collection of octroi and zila tax.

The source disclosed that after auditing of the accounts Punjab's share in 2.5 per cent GST is found to be 42.6 per cent, that of Sindh 46 per cent, NWFP six per cent and Balochistan 5.3 per cent.

"But the federal government has made the 2.5 per cent GST collection a part of the divisible pool and denies Sindh of its rightful share," he said. The Sindh finance minister is reported to have stressed this point in the last informal NFC meeting and called it "illegal and unconstitutional". It has nothing to do with a majority approval or a consensus. "It is our right and that it should be given to Sindh," he said.

Sindh wants the federal government to give a 50 per cent share to the provinces from the divisible pool of taxes after deducting only two per cent collection charges and not the five per cent that it retains at present.

The federal government is also expected to keep aside the 2.5 per cent GST from the divisible pool of taxes. The provinces should distribute this amount on the basis of backwardness, revenue generation, size of the province and population.

The NFC is, therefore, heading towards a dead end. The government has not so far constituted the Council of Common Interest (CCI), a constitutional body to tackle federal-provincial and inter provincial issues. It is bound to affect the budget-making process in the provinces that remain unsure of the availability of resources for the next fiscal year. The provinces are in limbo.