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| October 7, 2005 | Friday | Ramazan 2, 1426 |
GST share issue remains tricky
KARACHI, Oct 6: The General Sales Tax is the fastest growing component of Pakistan’s revenue collection, showing an average rise of 13 per cent a year and is expected to mop up Rs294 billion in the current fiscal year.
It is emerging as a key factor in the lingering controversy over the National Finance Commission award, with the Sindh Finance Minister, Syed Sardar Ahmad, pleading that Sindh should be given 46 per cent of the 2.5 per cent GST collection as against what is reported to have been proposed in the new multiple factor formula of giving 25 per cent of this collection to the provinces on the basis of actual collection and 75 per cent on the basis of population.
Under the proposed formula, Sindh’s share in the 2.5 per cent GST collection will drop sharply and may be resisted by the Sindh finance minister. The impasse may lead to the minister’s resignation, enabling the chief minister to take charge of the finance portfolio and represent Sindh on the NFC.
“Sardar Ahmad’s exit and Arbab Rahim’s induction on the NFC will pave the way for the promised consensus on the resource distribution formula,” a well-placed and reliable source in the Sindh government disclosed to Dawn on Thursday. President Musharraf has promised to intervene in the NFC deliberations after the elections of nazims, with a consensus formula for resource distribution.
Failing health and old age are mentioned as the reasons for Sardar Ahmad’s expected resignation from the government. He is said to have been disposing of his official work mostly at home for almost a month. Many attempts were made by this reporter to reach the minister by telephone in last few days which proved futile.
In the NFC deliberations before the 2002 elections and since, Sardar Ahmad has taken a consistent stand on making resource generation as one of the main criteria for distribution of resources among the provinces. In 2002, just before the October elections, the NFC apparently reached a consensus when Sardar Ahmad offered a two per cent token share for resources generation and agreed to accept population being given 94 per cent ratio. Other provinces were also inclined to agree, but the NWFP refused to accept the distribution of GST on the basis of actual collection.
The 2.5 per cent of GST collection was given by the federal government as compensation to the provinces following abolition of the zila and octroi tax in 1998. By then the rate of GST was 12.5 per cent which was raised to 15 in 1998. By then the rate of GST was 12.5 per cent which was raised to 15 per cent to provide 2.5 per cent as compensation.
Under the existing arrangement, the 2.5 per cent component of GST is split into two parts. After deducting five per cent of the 2.5 per cent, the federal government gives 32.5 per cent on the basis of population and 67.5 per cent on the basis of collection.
Sindh gets 46 per cent of the 67.5 per cent of the 2.5 per cent GST collection on actual revenue basis while Punjab gets 42.6, Balochistan 5.4 and NWFP six per cent. Sardar Ahmad’s plea is that Sindh should be given 46 per cent of the 2.5 per cent of the GST collection because it is compensation for the loss suffered on account of abolition of the octroi and zila tax. Sindh suffered most by the abolition of octroi by the inter-provincial coordination committee (IPCC) in 1998.
Since there was much manipulation and arm-twisting in the NFC, Abdul Karim Lodhi, who was a non-statutory member for Sindh on the NFC, resigned in December 2004 as a protest. Within less than a year, Sardar Ahmad may be forced to go as a penalty for raising one’s voice against the status quo. Mr Lodhi and Mr Sardar Ahmad are both retired bureaucrats.
Ironically, the 1997 NFC was also signed by a retired bureaucrat, Kunwar Idrees, who was then Sindh’s finance minister. The other signatory was Nabi Bux Bhurgari, a nominee of the then caretaker chief minister Mumtaz Bhutto. The 1997 NFC award is seen here as having irremediably hurt Sindh’s interest.
The prime minister, who is chairman of the NFC, had invited members for informal consultations on Sept 17 and offered a multi-factor formula. Hints were dropped that Sindh’s proposal of revenue generation would be accommodated in the formula but there would be a drastic change in the distribution of 2.5 per cent GST collection.
What has been leaked out suggests that 25 per cent of the 2.5 per cent GST collection would be distributed among the provinces on the basis of their actual collection and 75 per cent on the population basis. The bargain is that revenue generation will be given a two per cent ratio in distribution of the federal tax pool.
Of the current fiscal year’s expected Rs294 billion, after providing for five per cent collection charges, the 2.5 per cent would amount to Rs46 billion.
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