KARACHI, Jan 5: The 8-member provincial committee on National Finance Commission headed by Sindh Local Bodies Minister Agha Siraj is meeting on Tuesday to give final touches to a set of recommendations on the basis of which the provincial government is expected to take its position on resource distribution between the federation and the provinces and among the provinces in the NFC award deliberations.

The committee is expected to suggest to the Sindh government to seek consensus of all provinces on resource distribution arrangement that is based on four or five considerations, which are tax collection, revenue generation, needs of the province, area of the province and population.

In relation to area, Balochistan may be given a weight of 45.2 per cent, Punjab 26.74 per cent, Sindh 18.35 per cent and NWFP 9.70 per cent in revenue distribution.

Population influx from other provinces, which seems to have accelerated in recent years after military operations in NWFP, is said to have visibly disturbed demographic balance in Sindh and is expected to figure in the committee’s deliberations on Tuesday. It has already caused immense tension in Karachi and other cities and has affected economy of the province.

There has been flurry of angry statements from various community leaders in Karachi. How the Sindh government takes up this issue and how federal government intervention comes to tackle this otherwise explosive situation will depend on the political maturity of the leaders of ruling parties, which are now in close alliance.

“Federal government may also be requested to consider the influx of population in Sindh, while calculating revenue sharing either on population or on per capita basis,’’ is a two liner proposal for the committee that meets on Tuesday.

The committee is being asked to suggest to the Sindh government to plead for de-federalisation and re-provincialisation of sales tax as it was so before the Independence.

The logic being offered is that each province should have at least under its direct control one major and elastic source of revenue for meeting rapidly growing financial responsibilities and liabilities.

“Under manifestoes of all parties of the ruling alliance, a process of decentralisation is to set in and provinces are set to get more responsibilities and hence the justification for more avenues to generate resources,’’ a member of the committee answered.

The Sindh government will be asked to push vigorously a 46 per cent share in 2.5 per cent GST collection given to compensate abolition of octroi and zila tax. Abolished in 1999, the government then headed by Nawaz Sharif increased rate of GST from 12.5 per cent to 15 per cent with an explicit provision that every province will be compensated for the loss suffered on account of withdrawal of octroi.

A country-wide audit of octroi collection showed that Sindh’s share was 46 per cent. But the system that was placed in for this purpose provided Sindh with only 34 per cent share of whole collection of 2.5 per cent of GST. Musharraf’s authoritarian revenue order, 2006 formalised this arrangement for which there is a mounting popular pressure to undo it.

The committee is proposing to the Sindh government to demand a refund of Rs66 billion for losses on account of wrong distribution arrangement. In case there is no change, Sindh will suffer a loss of about Rs64 billion during next NFC distribution term.

A major issue to be taken up by the committee is to suggest to the provincial government to demand from the federal government authorisation to levy and collect sales tax on services. Members of the committee quote a provision of 1973 Constitution, which explicitly excludes the federal government authority from levy of sales tax on services.

Since the year 2000, the federal government is levying and collecting sales tax on a few services, which are distributed on the basis of NFC formula among the provinces. A supporting document reveals collection of about Rs70 billion sales tax during 2004-05 and 2005-06 on electricity, telecommunications and mobile phones.

The federal government collects these provincial revenues and distributes them among provinces on NFC formula. The Sindh government is being asked to demand province-wise collection figures so that each province gets what it generates.

A reference is made to the 12th Finance Commission Award of India. According to this award, population is given only 25 per cent weight but income generation and distance is given a 50 per cent weightage. Area is given 10 per cent share followed by 7.5 per cent each for tax efforts and fiscal discipline.

All said and done there are doubts whether any NFC has been formed or not. The present government announced a NFC headed by Syed Naveed Qamar when he was finance minister. He has now ceased to be the finance minister. Prime Minister Yousuf Raza Gilani is now technically the finance minister, who has appointed Shaukat Tarin as his adviser on finance.

But Mr Tarin cannot be appointed head of NFC as he is not a member of parliament. The Sindh government has expressed its reservations on inclusion of Ms Hina Rabbani Khar, a state minister, as one of the members of NFC. Then the last notification issued for NFC was the continuation of 2006 order issued by former president Musharraf.

There are questions on terms and tenure of the NFC and its award if it comes at all. “This status quo is against Sindh, Balochistan and NWFP and serves only Punjab,’’ remarked a committee member.

Quite a many considerations are keeping leaders in Sindh and Balochistan silent on the NFC issue for the time being. But this silence is becoming deafening and may burst into unbearable blast any time. This is how political and social analysts believe.