ISLAMABAD, Sept 18: The federal government has proposed a multi-factor formula for horizontal distribution of the net proceeds of the federal divisible pool among the provinces to finalize the seventh National Finance Commission (NFC) award, it is learnt.

The new formula, prepared on the instructions of President General Pervez Musharraf, conceded for the first time some ground to Sindh government’s demand for including revenue in the resource distribution mechanism, informed sources told Dawn on Sunday.

These sources, however, said the provinces had sought certain explanations about the new multi-factor formula on the National Finance Commission (NFC) award before they made a formal response to it.

The new formula envisaged 90 per cent weight to population, and the remaining 10 per cent to other three factors- revenue, poverty and inverse population density, the sources said.

In this way, three smaller provinces would get higher share in percentage terms than their existing share, including subventions and special grants. Now the share of Balochistan should be higher than 8.75 per cent, 15 per cent for the NWFP and about 24 per cent for Sindh.

The sources said the formula was ambiguous about the percentages proposed to the three factors. Some provinces have asked the federal government to explain in detail the parameters of multi-factor formula on horizontal distribution of resources i.e., among the provinces.

The sources said the centre had also proposed that 25 per cent of the 2.5 per cent general sales tax collected in lieu of octroi and zila tax should go straight to the respective provinces against original collection and rest of the 75 per cent should be distributed on the basis of the NFC formula i.e., population plus other factors.

The provinces were asked last week to examine in detail the multi-factor formula and come up with their responses to enable the president to take a final decision on the seventh NFC so that it becomes effective by end-December 2005.

The sources said the Sindh government had brought on the record that although it was not opposed to the inclusion of adviser to the prime minister on Finance and Revenue Dr Salman Shah in the newly constituted NFC, his nomination was a clear violation of the con stitution.

Referring to a letter from the Sindh government, the sources said, the province had pointed out that under Article 160(1) of the constitution, the president could appoint “such other persons” as members of the NFC “after consultation with the governors of the provinces”, in addition to the finance ministers and one private members each.

The provincial government said that while Mr Shah was eligible to become member of the NFC, his appointment should not have been made without governors’ consultation. It said that since the governors of Sindh, Balochistan and the NWFP have not been consulted on the subject, the NFC membership tilted towards Punjab as it had three members as opposed to two each by other provinces.