KARACHI, Sept 9: Sindh has accepted Rs20 billion offer for the proposed ‘subvention pool’ being set up to provide annual grants to Sindh, Balochistan and NWFP from the year 2003-04 to 2007-08 conditionally, and demanded a firm pledge from Islamabad that next award of the NFC, due in 2008, should not be based entirely on the population.

Knowledgeable sources disclosed to Dawn on Monday the Sindh government representatives were reported to have asserted that resource distribution should be based on four factors — population, tax collection, backwardness and size of the province.

Now that representatives of the federal and Punjab governments are reported to have proposed the creation of a subvention pool and distribution of divisible pool of taxes on the basis of population only, the smaller provinces want the announcement of NFC award before the elections, preferably within this month.

Reliable sources say that smaller provinces expect substantial flow from the annual grants and a change in the population ratios which would now be counted on the basis of 1998 population census.

But no formula has been spelt out for the distribution of the proposed subvention pool among Sindh, Balochistan and NWFP. But there are reasons to believe that it would be distributed among the three provinces on the basis of population.

Sources estimate Sindh’s share in the proposed subvention pool will be at over Rs9 billion. But the representatives of Sindh, according to these sources, had given a positive indication in the last NFC meeting at Karachi on August 30-31, to bring it down at about Rs8 billion plus to provide a higher share to Balochistan.

The next NFC meeting scheduled on Sunday (Sept 15) at Peshawar is expected to formalize this arrangement of resources distribution on the basis of population and would create a subvention pool.

There are strong indications that the divisible pool of taxes will be distributed between the federal and provincial governments on 42:58 ratio. From this 42 per cent of divisible pool, Sindh would get a share on the basis of population, which should be more than 23.28 per cent. The 1998 population census, although controversial as it did not take into account the migration of people from Punjab and NWFP into Sindh, will remain the benchmark and should be somewhere at around 24 per cent.

Sindh will also get direct transfers on account of its share in development surcharges and royalty on oil and gas. The third component will be the expected subvention at about Rs8 billion every year for next five years.

It is not clear if the formula being worked out for the distribution of divisible pool of taxes will be applied on allocation of development funds among the provinces.

Development funds allocation to the provinces are processed at various levels every year. Every tier of processing and decision making is dominated by the bureaucrats, who always look towards Islamabad for guidance. Politicians are involved in the final stage. The National Economic Council, chaired by the Chief Executive, decides on the allocation of development funds at the final stage.

For last several years, Balochistan has been complaining the bureaucrats of the Planning Division of ignoring its size while allocating funds for its projects. Any infrastructure project in Balochistan costs more than other province. So is the expenditure on maintenance. Balochistan’s complaint is that it does not have representation in the decision making bodies according to the ratio of its population. Sindh too, has its own complaints and made some noises this year when its mega projects were totally disregarded. These were included later on the intervention of President Pervez Musharraf.

The offer of subvention pool was made in the last NFC meeting held on August 30-31 at Karachi. The representatives of Islamabad and Lahore are reported to have made a joint plea that any drastic change in the formula of resources allocation among the provinces at the time of elections is fraught with serious implications. “It is bound to become a major election issue in Punjab,” one of the participants of the NFC meeting is quoted to have remarked.

Punjab is reported to have demanded an open discussion on the positions taken by the three smaller provinces, which was readily agreed by many participants. On tax collection, Punjab’s plea was that import duty and sales tax revenue generated at the Karachi Port is contributed by importers in Punjab also.

“There are nine dry ports in all parts of the country. Revenue being generated from each of these nine ports is the best reference to calculate how much contribution is being made by importers in the provinces” was the counter argument reported to have been offered.

As for the argument that there are factories and offices of the investors from Punjab, the counter argument reported to have been given in the NFC meeting pointed out that basic issue is the utilization of infrastructure facilities of a place that needs to be compensated and paid back in form of taxes.

Sindh is reported to have demanded initially a subvention pool of Rs25 billion in every budget from 203-04 to 2007-08 with a firm pledge that next NFC award due in 2008 would be based on population, backwardness, tax collection and size of the province. But after discussion gave conditional consent to the proposal of Rs20 billion pool with Sindh’s expected share at about Rs8.5 billion every year.

“This Rs20 billion subvention pool is not linked with the tax collection of the Central Board of Revenue and will have to be provided in every budget from 2003-04,” a well-placed source confided. But for many of those involved in the NFC exercise the acceptance of subvention pool has been a bitter pill. “It hurts self respect. We do not want charity and give away,” confided a well-placed source.