February 2, 2006	Thursday	Muharram 3, 1427

KARACHI, Feb 1: Quiet moves are being made to convene a formal or informal meeting of the National Finance Commission (NFC) and to strive for a consensus of the political leadership of the federal and the provincial governments on a formula for distribution of tax resources.

“The efforts to convene NFC meeting are, by no means, to counter the resource distribution formula announced by President Gen Pervez Musharraf on Jan 17,” a close watcher of the ruling coalition in Sindh explained. He pointed out that the purpose is to convey a message of political consensus among the coalition partners in all the provinces and the Federation, which is vital for the continuation of the present dispensation beyond next general elections to be held in 2007.

The politicians, who are closely linked with the ruling coalition in Sindh, do not dismiss Musharraf’s formula but contend that it is a temporary and a short term arrangement. A 5-year fiscal formula should come from a constitutional body which is the NFC. “The coalition should give a message of unanimity of views, accommodation and tolerance on issues of vital national importance like the NFC,” he said.

Islamabad now fears a revival of 1983 political fervour seen in the ‘Movement for Restoration of Democracy’ (MRD) protests in the Sindh rural areas. There are reports that a number of local bodies councils at the district, tehsil and union levels dominated by politicians of the ruling coalition partners have passed strong worded resolutions against construction of Kalabagh dam and the Musharraf’s NFC formula. In some places there has been a demand for declaring the two sea ports in Karachi as ‘Sindh’s natural resources’ like oil and gas and the dams. The demand is that the Sindh province be given effective role in management of these ports and a share in their earnings. There is a demand to have a share in the non-tax revenue of the federal government and that there should be a close scrutiny of the federal expenditures.

Such outbursts have brought into action all those in the government who claim some expertise in crisis management. An indication of this was seen on Wednesday afternoon on a private television channel where Syed Sardar Ahmad declared that positions taken by the provinces, including that of Sindh, in the NFC negotiations “is not final and not irreversible”. Sardar Ahmad was a member of the NFC and attended its last meeting in June 2005, where a clear split between Punjab with three other provinces was visible and loud.

The three provinces demanded a multiple criteria for distribution of resources including inverse population density ratio, backwardness and resource collection besides, population. Punjab’s insistence was to keep population as the only ratio.

Musharraf’s formula deeply embarrassed the Muttahida Qaumi Movement (MQM), the major coalition partner of the government in Sindh. The MQM ministers and advisers did express their disappointment on Musharraf’s formula but never came out openly to record their dissent.

Sardar Ahmad is now reported to have written letters to the Sindh Chief Minister, his adviser and other members of the NFC to begin afresh their efforts to reach a consensus.

Sources close to the Sindh government say that Dr Hafeez Sheikh, as a provincial finance minister and a member of the NFC before the October 2002 elections, had agreed to keep the population as the only criterion for distribution of federal taxes.

The only condition was that the federal government should give a firm pledge that the next NFC after five years would consider the multiple criteria for distribution of federal taxes. The provinces also wanted increase in their share from 37.5 per cent in the federal tax pool to 47 per cent.

Sindh wanted that the 2.5 per cent general sales tax collection should not be made a part of the federal tax pool and its distribution should be on collection basis.

The Musharraf formula, according to a working of the Sindh finance department, deprives the province of a substantial amount of money in the 2.5 per cent GST but gives a very small gain from share in Rs28 billion subvention pool.

There are reasons to believe, that if the NFC gives some financial relief to Sindh in the 2.5 per cent GST distribution and makes a firm promise that the next NFC will consider multiple criteria for distribution of tax pool, the MQM dominated coalition in Sindh may consider to give consent to population being made as the only basis.

Balochistan is most hard-hit by the new financial arrangement. It has lost, on account of new formula, 2.5 per cent GST distribution. The royalty and distribution of gas development surcharge has not been addressed in the resource distribution formula. At present Balochistan has a red balance of about Rs6 billion with the State Bank of Pakistan, after an overdraft of over Rs10 billion was frozen and made a loan payable in easy instalments.

The new financial arrangement has created a sharp North and South divide in Pakistan. The two Northern provinces NWFP and Punjab have benefited most and the two Southern provinces Sindh and Balochistan have become more pauperised.

A small section of the ruling Muslim League and the coalition partners of the government look this situation with fear and quiet moves are, therefore, in offing to prevent the outbreak of any big political storm.