May 30, 2005	Monday	Rabi-us-Sani 21, 1426

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ISLAMABAD, May 29: The federal government will save at least Rs65 billion during the 2005-06 fiscal year because of non-finalisation of the sixth National Finance Commission (NFC) award, it is learnt. Finance ministry sources told Dawn that even after paying Rs5-8 billion to Balochistan and the NWFP as special grants to help them meet their financial requirements, the federal government would have a net saving of Rs60-65 billion next year.

The federal government has informed the four provinces that they would get a total of Rs235 billion during 2005-06 from federal divisible pool under the current award. The provinces have been asked to prepare their budgets accordingly.

Finance ministry sources said it was just a legal formality now to extend the 1996 NFC award for another year through a presidential order. However, President Musharraf is likely to hold a meeting with the prime minister, the chief ministers of the four provinces and provincial finance ministers, most probably on Monday (May 30), to discuss the NFC issue before issuing such an order.

For the current year, the provinces got about Rs203 billion transfers from the divisible pool. Net transfers to the provinces after inclusion of straight transfers, project and foreign aids and special grants (subventions) during the current year totalled Rs257 billion, the sources said.

When contacted, Sindh Finance Minister Syed Sardar Ahmad said that according to his calculation the federal government would save Rs70-80 billion next year as a result of extension of the existing award for another year.

“Even if calculated on the basis of 47 per cent share offered by the centre, the provinces’ share of the divisible pool would amount to Rs301 billion for 2005-06,” he said. Since the provinces were expecting higher than 47 per cent share in the divisible pool under the sixth award, the net saving to the centre would be even more than Rs85 billion, the sources said.

The Punjab’s share is bound to come down from the existing 57.36 per cent under any formula for horizontal distribution of resources, finance ministry sources said. They said even the formula presented by the Punjab itself envisaged its share at 54 per cent while the proposals made by other provinces showed Punjab’s share at 52 per cent, even without accepting Sindh’s demand for including the factor of revenue collection in the mechanism.

Net proceeds of divisible poor are arrived at by deducting five per cent collection charges by the centre. In case of income tax, the federal government deducts six per cent. Under the fifth NFC award, the federal share in the divisible pool is 62.5 per cent with the remainder 37.5 per cent going to the four provinces. These shares are governed by Distribution of Revenue and Grants-in-Aid Order 1997.

Province-wise share in the divisible pool has been worked out on the basis of percentage of their population determined in the Distribution of Revenues and Grants-in-Aid (Amendment) Order 2002.

This envisages 57.36 per cent for the Punjab, 23.71 per cent for Sindh, 13.82 per cent for the NWFP and 5.11 per cent for Balochistan. Practically, however, the NWFP and Balochistan get about 14 per cent and eight per cent respectively when their special grants/subventions are included.

Currently, six major taxes are part of the divisible pool — taxes on income, wealth tax, capital value tax, taxes on sales and purchase of goods, export duty on cotton, customs duty and federal excise duty.

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