KARACHI, Sept 23: Sindh has strong reservations on the recent multi-factor resources distribution formula given by the federal government in the informal meeting of the National Finance Commission held this month.

A comprehensive response to the multi-factor formula by the Sindh government is expected to be finalized some time early next week. Inputs are being obtained from the economists, legal and constitutional experts for this response.

A random talk with different personalities in the government, bureaucracy, political and business circles revealed that the new multi-factor formula would not be able to enjoy a consensus support. The business leaders of Karachi Chamber of Commerce and Industry and other trade bodies are expressing openly their views on highly explosive political issues like NFC and water distribution.

Well placed sources said that there was no question of accepting the principle of distribution of 2.5 per cent general sales tax (GST) suggested in the new formula according to which 25 per cent of the collection would be on the basis of the actual collection and remaining 75 per cent would go in the federal tax pool to be given to the provinces on the basis of population.

“This distribution formula of the 2.5 per cent GST will deprive Sindh of more than Rs7 billion in its actual share,” a financial analyst revealed. Sindh sticks to its principled stand of distributing the 2.5 per cent GST collection on the basis of actual collection.

“The 2.5 per cent GST is in lieu of octroi and zila tax and has to be given on the basis of actual collection,” a well placed source in Karachi said on Friday. In 1999 when the Federal government in an inter-provincial coordination committee (IPCC) meeting held at Peshawar decided to abolish octroi and zila tax, a decision was taken to raise the GST rate from 12.5 per cent to 15 per cent. Islamabad justified this 2.5 per cent raise in GST rate on the ground that its collection would be distributed among the provinces to compensate their losses from octroi and zila.

Karachi in Sindh was the largest generator and collector of the octroi and its abolition literally gave a crushing financial blow to the biggest and the oldest municipal body of the country the Karachi Municipal Corporation. Punjab gave wrong and inflated figures of its octroi and zila tax collections and claimed quite a big chunk of money. It was in 2002 that a proper audit exposed Punjab’s fraud and established Sindh’s claim of being given the lion share in the 2.5 per cent GST collection.

The distribution formula was changed during 2003 in light of the findings of the audit report but Sindh was never compensated for the losses suffered on account of wrong and inflated figures given by the Punjab government.

“In neighbouring India, the population factor is given only 10 per cent weightage in resource distribution arrangement,” a leader of an opposition party remarked while pointing out that the new multi-factor formula gives population 90 per cent share. The remaining 10 per cent is to be divided between revenue collection, backwardness and inverse population density.

As a compromise, Sindh in 2002 proposed population be given 94 per cent share while two per cent each weightage was to be given to revenue collection, backwardness and inverse population density. That formula was rejected by Punjab and NWFP. Thereafter, Syed Sardar Ahmad, the finance minister of Sindh has said on more than one occasion that it was a compromise formula to get consensus. Since, it was not accepted, Sindh is not bound to remain content with two per cent share for the revenue collection.

As for distribution of gas development charges between Sindh and Balochistan, the finance minister has stated that Quetta should take up this issue with Punjab and NWFP where largest quantity of its gas is being consumed. Sindh gets hardly five or six per cent of Balochistan’s gas. Sindh is in fact a loser in gas because the fertilizer plants get it on highly subsidised rates. The fertilizer produced in Sindh from subsidised rated gas, is consumed in Punjab and NWFP. No compensation is given to Sindh.

Prime Minister Shaukat Aziz’s plea to the provinces to take into account the defence allocation, establishment expenditure and debt servicing while asking for a 50 per cent share in the divisible pool does not hold much weight. The economic benefit of defence allocations and establishment cost directly goes to Punjab and NWFP as the two Southern provinces are not represented according to their population ratio in the armed forces and in civil services.

Sindh shares the burden of Punjab and NWFP’s population because of continuous emigration and had never been compensated for this extra expenditure on people who are registered as voters and citizens in other provinces but live here and remit money back home.