KARACHI, Aug 31: The National Finance Commission has again decided to maintain population the sole criterion for distribution of tax pool revenue among the provinces for next five years — from 2003-04 to 2007-2008.

The population has been the sole criterion of the resources distribution since 1975 when the first NFC award was declared and has been retained so in all the five NFC awards. The sixth NFC also maintains population the only basis for resource sharing.

In two days meeting at the State Bank in Karachi that concluded on Saturday, the NFC did not totally reject the positions of Sindh, Balochistan and NWFP from where the consistent demand for last more than 30 years is to give due weightage to factors like tax collection, backwardness, size of the province in matter of resources distribution. The NFC has agreed to meet the demands of these provinces by way of offering grant transfers or subventions which will be outside the tax pool.

The federal government has however, agreed in principle to review the existing distribution ratio of 62.5 and 37.5 per cent with the provinces. “I can only tell you that provinces will get more than 37.5 per cent of the total divisible pool”, Shaukat Aziz, federal finance minister and chairman NFC informed Dawn by telephone on Saturday evening after presiding over a day-long deliberations for the second consecutive day in the city.

He indicated in many words that a new distribution ratio of tax resources between Islamabad and the provinces has been agreed in the just concluded NFC meeting at Karachi but he was not in a position to divulge it.

“The federal government has already given 2.5 per cent of the GST to the provinces. Its impact automatically raises the share of provinces to 41 plus per cent in the federal divisible tax pool”, a well placed source in the NFC said.

He indicated that the new distribution ratio of the divisible pool may be 43 to 43 per cent for the provinces and remaining for Islamabad. This takes into account the impact of 2.5 per cent GST and proposed subventions for the provinces.

Mr Aziz argued that the defence needs and debt servicing are the two expenditures in federal budget that would have to be considered while demanding a review of distribution ratio of the tax resources between Islamabad and the provinces.

“We want provinces to be financially self-sustaining” the finance minister remarked when asked to elaborate whether the new arrangement would satisfy the provinces.

Sources involved in the NFC said that the next meeting of the commission is being held on Sept 16 at Peshawar where representatives of the provinces and federal government would give a fresh look at their expenditure and revenue.