UNDER the 1973 Constitution the National Finance Commission award aims at distribution of financial resources among the provinces of Pakistan by the federal government on an annual basis. Certain types of taxes collected in each province are pooled, then redistributed according to the NFC formula.
Pakistan has had five NFC award formulas. The fifth NFC award, adopted in 1997, was supposed to be valid for five years but failure to reach agreement on a sixth one has meant that the fifth is still in operation.
Taxes included in the pool are (1) income taxes, (2) general sales tax, (3) wealth taxes, (4) capital gain taxes and (5) custom duties. The inclusion of custom duties started with the 1997 award. In the 1991 award custom duties had gone exclusively to the federal government.
Collections for the workers' welfare fund remain in the province where they are collected. Resource royalty is collected by the federal government and distributed to the provinces, based on independent agreements.
NFC award 1997 specifies that 63 per cent of the pooled taxes will go to the federal government and 37 per cent will be distributed among the four provinces.
Sindh province is contributing 63 per cent to the total revenue generation of the federal government annually. In fiscal year 2007-08 the aggregate country collection of revenue was Rs1,485 billion wherein Sindh's share to the federal government in the context of sales tax was 63 per cent, in port duties 86 per cent, in industeries 43 per cent, in services and income tax 78 per cent. In the last year's distribution of resources Sindh got only Rs94 billion out of the total revenue generation of Rs1,485 billion.
It is assumed that Sindh gets 23 per cent of the total revenue generation but in fact it gets 17 per cent after paying off debts and salaries to the federal government, like Rangers etc. In all actuality, it gets a meagre amount.
The situation becomes grim in the background of the fact that Sindh makes proportionately highest contribution to the national growth; and its contribution to national revenues is the highest no matter how it is calculated.
Exclusive of the revenue transfers received on account of natural resources, Sindh's existing share under the divisible pool cannot even meet the government's wage bill. The sole criterion for distribution of finance is population, and Sindh still gets its share on the basis of 1998 census, which shows its population as 29 million although our population in the past 10 years has increased sharply.
A new NFC award can-not be announced because the four provinces have failed to develop consensus. Consensus has not been reached because Punjab insists on resource distribution on the basis of population alone, whereas the other three provinces, namely NWFP, Sindh and Balochistan, demand giving importance to the revenue generation by each province, level of poverty in smaller provinces and other related factors as well while distributing the national resources among provinces through the National Finance Commission.
In the last Sindh Assembly session on Sept 4, I had presented a resolution on the floor of the house that we have to recommend to the federal government to give the NFC award on the basis of multidimensional factors, but the resolution was deffered to the next session. As a member of the Sindh Assembly I would suggest to the Sindh government to present a strong case on multidimensional factors for the next NFC award.
It is time the provinces and the federation arrived at a consensus formula for resource distribution. The PPP has also highlighted in its manifesto 2008 that the NFC award should be multipurpose and declared sales tax as an entirely provincial subject.
HUMERA ALWANI
Member, Sindh Assembly
Thatta
