AS per the Government of India Act of 1935, taxes levied and retained by the centre were import duties and receipts from Railways, Posts & Telegraphs.

Taxes levied by the centre which were divided between the Centre and the provinces and kept in the 'divisible pool" were: export duties on jute and cotton, taxes on income other than agricultural income, while taxes levied by the centre but were distributed among the provinces were: stamp duties, terminal taxes on movement of goods, succession duties excluding agriculture property.

Last were the taxes levied by the provinces and retained by them, included land revenue, irrigation charges, sales tax, professional tax, and entertainment tax. This was followed by Australian's Otto Niemeyer Award of 1937, wherein the share of the provinces from income tax was 50 per cent while under subventions NWFP got Rs10 million which it received till 1947.

Sindh received Rs10.5 million for only one year as allies landed at Karachi and things were financially better. The post-Independence arrangement 1948-50, when dominion of Pakistan adopted the Government of India Act, 1935, Railway budget was merged with the general budget and sharing of income tax with the provinces was suspended.

Sales tax was federalized with 56 per cent share to provinces and raising of money through public loans was made the sole concern of the Centre. This was followed by the Raisman Award, 1951.

On the basis of 1941 census, it awarded 50 per cent share in income tax share; 50 per cent of sales tax on net collection in the respective provinces; 50 per cent of central excise on tea, tobacco and betel-nut; the share of export duty on jute was kept at 62.5 per cent.

However, province/state share in income tax and central excise were: (the then) East Pakistan (45 per cent), Punjab (27.0 per cent), Sindh (12 per cent), NWFP (8 per cent), Bahawalpur (4.0 per cent), Khairpur (0.6 per cent) Balochistan States Union (0.6 per cent); and the remainder i.e. for those areas which were likely to accede to Pakistan like Junagadh, Kashmir and Hyderabad Deccan (2.8 per cent).

Fifty per cent of collection of sales tax at Karachi (then the capital of Pakistan) was shared on basis of population by provinces/states as: Punjab (54.0 per cent), Sindh(6 per cent), N.W.F.P.(10 per cent), Bahawalpur(4.0 per cent), Khairpur(0.1 per cent), Balochistan States Union(1.5 per cent) and Remainder (for Karachi & Tribal areas (14.4 per cent).

In addition, 10 per cent of any additional duty on jute to East Pakistan and subvention to N.W.F.P. was Rs12.5 million. Article 118(3) of the Constitution of Islamic Republic of Pakistan 1956 specifies resources as follows: a. Export duty on jute and cotton, and any other specified export duty; b. Taxes on income other than corporation tax; c. Specified duties of federal excise; d. Taxes on sales and purchases; and e. Any other specified tax.

The resources in the Constitution of Republic of Pakistan of 1962 is given in Article 144 (4) (i) taxes on income, including corporation tax, but not including taxes on income consisting of remuneration paid out of the Central Consolidated Fund; (ii) taxes on sales and purchases; (iii) export duty on jute and cotton, and such other export duties as may be specified by the President; (iv) such duties of excise imposed under a Central Law as may be specified by the President; and such other taxes as may be specified by the President.

The Constitution of 1973 reflect resources in Article 160(3) as under: (i) taxes on income, including corporation tax, but not including taxes on income consisting of remuneration paid out of the Federal Consolidated Fund; (ii) taxes on the sales and purchases of goods, imported, exported, produced, manufactured or consumed; (iii) export duties on cotton, and such other export duties as may be specified by the President; (iv) such duties of excise as may be specified by the president; and (v) such other taxes as may be specified by the President.

It is interesting to note that the same language in verbatim is reflected in the 1956, 1962 and 1973 Constitutions from the Government of India Act of 1935. The distribution of Divisible Pool taxes (provincial Shares) as per NFC Awards for 1962 and 1964 were 54 per cent each for East Pakistan, while for West Pakistan it was 46 per cent each. For N.F.C. 1970, 1974/75 and 1983, (Presidential Order), share of Punjab was 56.50 per cent, 60.25 per cent and 57.97 per cent; while Sindh's share was 23.50 per cent, 22.50 per cent and 23.34 per cent. Share of N.W.F.P was 15.50 per cent, 13.39 per cent and 13.39 per cent, while for Balochistan, the percentage was 4.50, 3.86 and 5.30.

In 1981-82, Punjab and Sindh were surplus provinces. Their surplus was taken away and deficit were picked up by the federal government. And new terms like surrenders etc cropped up.

Cash development loan was provided to provinces for development. If a federating unit could not utilize its allocated funds, it was surrendered to the Federal Government or the funds lapsed.

The arrangement exposed the capacity of bureaucracy, especially to suggest measures for new production capacity and its ability to implement. Facilities provided to government officials and their perks increased. New posts were created; demand on government increased and revenue deficit grants became unmanageable.

In the NFC Award of 1990, divisible pool taxes included income and corporate tax, sales tax, export duty on cotton, excise duty on tobacco and tobacco manufactures, and excise duty on sugar. The proceeds were to be distributed between the federation and the provinces in the ratio of 20:80. The provincial shares remained fixed on basis of population.

The pool was shared with Punjab getting 57.880 per cent, Sindh 23.28 per cent, N.W.F.P 13.54 per cent, and Balochistan 5.30 per cent. Special annual grant of Rs700 million and Rs1000 million respectively to Sindh and Punjab, was announced. Subventions to N.W.F.P. and Balochistan for three years at the rate of Rs200 and Rs100 million, respectively, were also included.

Net profit on generation of hydel power stations located in the provinces as per decision of the Council of Common Interests (12.1.1991) was to be guaranteed by the federal government, through the Kazi Formula (a popular NWFP demand).

Included in the Award were also the net proceeds of development surcharge on natural gas on production basis at well heads after deduction of collection charges of two per cent; and the royalty and excise duty on oil and gas according to production and royalty for non-renewable sources.

The practice of giving deficit grants and picking surpluses was discontinued and sales tax at retail level was entrusted to the provinces. The NFC Award of 1996 fixed provincial share at 37.5 per cent of net proceeds of income tax, wealth tax, capital value tax, taxes on sales and purchases, customs duties, federal excise duties excluding the excise duty on gas charged at well head, and any other tax which may be levied by the federal government.

The National Resource Picture means that all taxes shall be pooled and projections be made. Priority expenditure shall be deducted like SAP, defence, etc. After deduction, the remaining 37.5 per cent shall be given to the provinces.

Allocations of shares to the provincial governments were made on population basis with Punjab getting 57.88 per cent, Sindh-23.28 per cent, NWFP-13.54 per cent and Balochistan-5.30 per cent. Included were net proceeds of royalty on crude oil and development surcharge on natural gas.

Grants-in-aid to the provinces for five years were NWFP-Rs3310 million and Balochistan-Rs4080 million. It was stipulated that these grants would be increased annually by 11 per cent subject to subsequent adjustment in line with actual rate of inflation.

Matching grants to the provinces was also stipulated to provinces, registering 14.2 per cent minimum growth in provincial receipts subject to maximum limit specified below: Punjab Rs500 million, Sindh Rs500 million, NWFP, Rs100 Million, Balochistan Rs100 million.