ISLAMABAD, Jan 20: Sindh’s blanket consent to President Gen Pervez Musharraf on the National Finance Commission (NFC) award marks a withdrawal from its stated position on the issue and has led to a breakthrough, says a senior official in the federal finance ministry.

The official said that the NFC formula announced by the president envisaged 45.3 per cent share of the federal divisible pool to be distributed among the provinces in the first year as against the 46 per cent offered by Prime Minister Shaukat Aziz as the NFC chairman during negotiations.

He said that disagreement among provinces over the horizontal distribution of resources had left the centre with no option but to accept Punjab’s demand for continuation of the resource distribution on the basis of population.

Copies of Sindh’s three position papers on the issue obtained by Dawn suggest that almost none of its demands had been accepted in the new formula. However, the Sindh chief minister has welcomed the new formula.

Among other technical points, Sindh has been insisting that NFC should “be placed in an independent secretariat under the command of either judiciary or any other independent and dedicated chain of command through a constitutional amendment”.

It has been pleading that “there cannot be any consensus on the issue of resource distribution and the subject needs to be placed under a setup having constitutional mandate and technical support”. It said that diversity of views between the federation and provinces had necessitated the evolution of a neutral setup.

Sindh has also been demanding that the distribution of divisible pool taxes — income tax, sales tax, excise duty and customs duties — between the federation and provinces should be in the minimal ratio of 50:50 with a collection charge not exceeding 2 per cent going to federation.

It’s another demand was that one-sixth of the GST be deducted from the gross GST to be earmarked for distribution amongst the provinces in lieu of OZT abolished in 1998, before net distribution takes place.

Moreover, the GST on services which fall within the domain of provinces be distributed on the basis of actual collection till they evolved their own mechanism to levy and collect it.

Sindh has been demanding that population-based distribution of divisible pool must give way to a scientific and equitable formula that also addressed the factors of poverty, fiscal effort, revenue collection and area.

It said that in the wake of devolution and calls for provincial autonomy, federation ought not to undertake projects as provincial governments were fully geared to take up such plans on need basis. It was of the view that federal expenditure on education, health, agriculture, local government, sports, culture and tourism under the PSDP were not justified as these should be done by the provinces.

The federal government may retain two-thirds of sales tax and allow provinces to levy the remaining one-third, or one-third of total sales tax be distributed on the basis of origin.

Karachi port is a natural resource of the province, facilitating commercial and industrial activity in the country as well as its $24 billion trade, but the province bears the cost of social and economic infrastructure. Hence, the province should be given the share of its benefits on the same principles under which payment of hydel profit and royalty on oil and gas are paid to other provinces.