ISLAMABAD, June 2: The federal government has decided to announce next year’s budget on the basis of the 1996 NFC Award and has asked the provinces to do the same. The budget will be presented in the National Assembly on June 6. “The federal government has prepared the budget on the basis of the existing award. It is being given final touches and will be finalized after the return of Prime Minister Shaukat Aziz from his foreign visit on June 4,” a senior official told Dawn.

Adviser to the prime minister on Finance and Revenue Dr Salman Shah also confirmed that provinces had been asked to finalize their budgets on the basis of the existing award. Talking to Dawn, he said only a couple of days were left for the budget presentation and the new award could not be adjusted even if a formula was presented by President Pervez Musharraf and approved by all the stakeholders in near future.

Responding to a question, he said no deadline had been set for President Musharraf to finalize his formula to break the deadlock over distribution of resources. However, Dr Shah said the provinces had been informed that they would be provided additional funds whenever the new award was finalized.

When asked how would the government make changes in the federal and provincial budgets if a consensus was achieved on the NFC, Mr Shah said in that case expenditures which were to be made by the federal government would stand transferred to the provinces.

The sources said the federal government had informed the provinces that their share under the existing award would be Rs235 billion and they should make their budget projections accordingly. There would be no NFC meeting before the announcement of the federal and provincial budgets, they said.

The sources said the NWFP’s demand for an additional Rs2 billion as an interim arrangement against the net hydel profit had not been entertained by the centre. The provinces had authorized President Musharraf early this week to take a decision on the NFC award after having failed to achieve a consensus after two years of negotiations. Sindh and Balochistan had also asked the president to take a decision on the sharing of gas development surcharge between the two.

Under the existing NFC award, the provincial share is 37.5 per cent, while the remaining 62.5 per cent goes to the centre. After including 2.5 per cent GST in lieu of octroi and zila tax and subventions and grants, the provincial share goes up to 42.5 per cent.

For the current year, the provinces’ share of transfers on account of net proceeds of the divisible pool stood at Rs203 billion. Net transfers to the provinces after including straight transfers, project and foreign aids and special grants (subventions) during the current year amounted to Rs257 billion, the sources said.

The net proceeds of the divisible pool are finalized by deducting five per cent collection charges by the centre. In case of income tax, the federal government deducts six per cent collection charges.

Under the fifth NFC award of 1996 which became effective from July 1, 1997, federal share in the net proceeds of the divisible pool is 62.5 per cent, with the remainder 37.5 per cent going to the four provinces. These shares are governed under the Distribution of Revenue and Grants-in-Aid Order of 1997.

The province-wise share in the divisible pool has been worked out on the basis of their population in the percentages fixed in the Distribution of Revenues and Grants-in-Aid (Amendment) Order of 2002.

This envisaged 57.36 per cent share for Punjab, 23.71 per cent for Sindh, 13.82 per cent for the NWFP and 5.11 per cent for Balochistan. In practical terms, however, the NWFP and Balochistan get about 14 per cent and eight per cent when their special grants/subventions are included.

Currently, seven 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.