KARACHI, Jan 18: A national resources distribution formula which was discarded way back in the year 2002 has been revived and enforced by President Pervez Musharraf in his National Finance Commission (NFC) award declared on Tuesday in his address to the nation broadcast.

Early last year, after the NFC deliberations were deadlocked on conflicting positions taken by Punjab against the three other provinces —Balochistan, Sindh and NWFP —President Musharraf was authorized by all the four provincial governments to announce a consensus award.

The NFC deliberations were deadlocked because the three provinces wanted distribution of national resources on multiple criteria — revenue collection, inverse population density ratio and poverty. Punjab insisted on retaining population as the only criterion for allocation of share in the federal pool of taxes. President Musharraf had promised to accommodate demands of all the four provinces in his ‘consensus NFC award’.

In his consensus award, which he declared on Tuesday after amending article 160 of the 1973 constitution, rather than leaving this task to the NFC which he himself constituted, President Musharraf announced that share of the provinces is being increased from 42.3 per cent to 45.3 per cent from next July. He also announced a subvention pool of Rs20 billion in which Sindh and Punjab will also be given a share which is not available to them in the 1997 NFC award. Under the 1997 NFC award only NWFP and Balochistan get subvention share which is now being increased.

The NFC constituted in December 1999 by the military government began its deliberations in the year 2000 with long periods of intervals. It held a decisive two-day meeting on August 30 and 31, 2002 in Karachi where it was decided to raise the share of the provinces in the federal pool of taxes to 43 per cent. It was then decided to distribute resources on the basis of population. But a firm pledge was given that the next NFC award after five years in the year 2007-08 will consider multiple criteria for distribution of federal funds. It was decided to give up the principle of population as the single criterion for resources distribution after 2007-08.

An annual subvention pool of Rs20 billion was set up which was to be shared by three provinces Sindh, Balochistan and NWFP. Sindh was expecting a share of more than Rs9 billion. There was almost a consensus in the NFC but what created a split was the issue of the status of 2.5 per cent general sales tax. The GST rate was raised from 12.5 per cent to 15 per cent after an Inter Provincial Coordination Committee (IPCC) decided in 1999 to abolish octroi and zila tax. The 2.5 per cent collection was to be decided on the basis of actual collection of the octroi in each province. An audit was carried out which determined Sindh’s share at 46 per cent of the total octroi and zila tax collection in all parts of the country.

Sindh has taken a position to keep 2.5 per cent of GST collection separate from the federal pool of taxes. Under 1997 award, the provinces get 37.5 per cent of the federal taxes pool while the federation retains 62.5 per cent. There has been a consistent demand to distribute 2.5 per cent GST estimated at around Rs38 to Rs40 billion in the current fiscal year. Sindh wants a straight 46 per cent share amounting to about Rs18 or Rs19 billion.

The federal government now distributes 62.5 per cent of 2.5 per cent GST collection on the basis of actual collection and remaining 37.5 per cent on the basis of population among the provinces.

The NFC negotiations broke down in September 2002 because of the reluctance shown by Islamabad and Lahore to accept Sindh’s demand of keeping 2.5 per cent GST separate from the federal taxes pool. The other issue of distribution of hydel profits to the NWFP and royalty and development surcharge to the Balochistan remain unresolved till today. These issues were responsible for deadlock of the NFC negotiations in 2002 and will cast shadows even now.

The position taken by the three provinces —- Sindh, Balochistan and the NWFP -— to distribute national resources on the basis of multiple criteria remained unchanged in the proceedings of the NFC formed after the October 2002 elections. Punjab also continued to insist on declaring population as the single criterion.

President Musharaf’s NFC formula is a vindication of Punjab’s position and it shows contemptuous disregard to the positions taken by other three provinces on distribution of federal funds. This award has put to test the political leadership of the three provinces who will now have to answer a lot of questions from their supporters as well as adversaries in their respective areas.

Muttahida Qaumi Movement (MQM) leadership including Altaf Hussain and former provincial finance minister Syed Sardar Ahmad made spirited pleas for multiple criteria and for giving up the population as the sole basis for funds allocation. Sardar Ahmad wrote articles in newspapers to articulate his and MQM views on the NFC. Musraraf’s formula hardly meets the position taken by the government ally party — the MQM.