ISLAMABAD, Jan 19: The National Finance Commission on Monday agreed to abolish the subvention pool, withdraw special grants to provinces and increase the provincial share of the divisible pool to 50 per cent, it is learnt.
The next NFC meeting to be held at Karachi on Feb 5 would discuss the formula for inter-provincial distribution of funds from the divisible pool, Finance Minister Shaukat Aziz told a joint news conference with provincial finance ministers soon after the commission's meeting.
"We reiterated the federal government's intention to increase the provinces' share. Progress has been made and we are closer (to an agreement) than ever before," he said. "Don't go into percentages at this stage," he told a questioner.
Mr Aziz hoped that the new NFC award would be announced before March 31 as scheduled. "There would be no subvention pool, no federal government's grants...and provinces would meet their expenses on their own under the new NFC award," Sindh Senior Finance Minister Syed Sardar Ahmad said.
An NFC member, requesting anonymity, told Dawn that the centre had indicated to share net proceeds of the divisible pool with provinces on a 50:50 per cent basis as it would be relieved of expenses for special grants and contribution to the subvention pool. However, he pointed out, provinces still wanted even higher share.
The member said the current divisible pool stood at Rs176 billion. It was estimated that provinces would be better positioned to meet their requirements after a higher share in the divisible pool with the inclusion of some new sources of income instead of seeking subventions and grants. Such grants are normally related to law and order, calamities, devolution, police and rangers, etc.
He said all the provinces wanted at least 50 per cent of the divisible pool. On an individual basis, the NWFP demanded that it should be increased to 60pc, Sindh wanted it to be 55pc while Punjab and Balochistan called for 50pc share of the pool.
The issue of Gas Development Surcharge (GDS) would be finalized by Sindh and Balochistan mutually before the next NFC meeting, Mr Aziz said. He confirmed that a demand by provinces' for inclusion of taxation on petroleum products in the divisible pool had been discussed by the commission but, he added, no decision could be made.
The finance minister said the federal government gave a presentation on its revenue, expenditure and deficit targets for next five years that had already been released in the Poverty Reduction Strategy Paper.
He said the Central Board of Revenue chairman also gave a presentation on tax reforms and revenue situation so that provinces could adopt some ideas to increase their revenues with the help of the federal government.
He said the issue of hydel profit, though out of the NFC purview, was also discussed because the NWFP was dependent on this source of income. He said an arbitration committee would soon be set up to resolve the dispute between Wapda and the NWFP.
An NFC member said the provinces raised objections to some of the projections on the centre's revenue and expenditure targets. Mr Aziz said the provincial members broadly talked about their revenue and expenditure estimates. He said the NFC award would be finalized keeping in mind the spirit of national integrity, objective of strong Pakistan and better relations between the centre and the federating units.
According to another NFC member, provinces were of the view that around Rs60-80 billion worth of the Annual Development Programme was outside the approved national budget which should be spent in provinces on an equitable basis.
Sources said Balochistan was demanding its share of Gas Development Surcharge on the basis of overall sale price. The province was receiving Rs4 billion GDS per annum which could go up to Rs8 billion if the issue is amicably settled with Sindh.
There was consensus among the provinces that population should be the basis for sharing of resources but weightage should also be given to the revenue collection capacity, backwardness, area, and poverty.
NWFP Senior Finance Minister Sirajul Haq said the federal government should show generosity and take revolutionary steps to bring prosperity to provinces.
He said the NWFP estimated Rs345 billion in arrears payable by Wapda and Rs17 billion for the fiscal year 2003 under the A.G.N. Kazi formula but regretted that payment to the province under the hydel profit was capped at Rs6 billion per annum.
He said if the province was given its rightful funds, it would be able to clear its dues to the federal government. Balochistan Finance Minister Syed Ahsan Shah said Sindh and Balochistan had so far held two meetings over the issue of GDS and hoped the matter would be resolved soon.
Punjab Finance Minister Sardar Husnain Bahadur Dareshak said there was progress and all issues would be resolved amicably. He hoped that the new NFC award would be just, fair and in the interest of the provinces as well as the federation.
Sindh Finance Minister Syed Sardar Ahmad said distance between the federal and provincial governments had been shortened and hoped that the NFC award would be finalized with consensus.
He said though the provinces had demanded inclusion of many factors in the divisible pool and had also discussed these issues, yet they could not agree on any formula.