KARACHI, June 25: The federal government is all set to recover at least Rs80 billion from about Rs11,500 billion pool of taxes assigned for the provinces. The federal government charges on its own a collection cost at 5 per cent on taxes on import, income and on sales and 2 per cent on revenue recovery on oil and gas.

Besides this, at source recovery of collection charges, the federal government will retain about 53 per cent of entire country’s income leaving all four provinces, mainly Sindh, Balochistan and NWFP high and dry for almost entire year.

The four provincial governments now want the federal government to cut down heavily on its collection charges and pass on a big part of Rs80 billion to be retained by it to the provinces on the existing formula of the National Finance Commission.

“Total wage bill of Federal Board of Revenue (FBR) is hardly Rs1.9 billion,’’ Balochistan Finance Secretary Mahfooz Alam informed Dawn during a chat in Quetta on Monday. The provinces, he said, want that the federal government should share this wage bill of FBR with them and pass on the remaining amount to provinces.

He referred to a meeting of the ministers of all the provinces in Lahore on June 4 last in which representatives of all the four provinces made a unanimous demand to Islamabad to stop charging collection charges at 5 per cent and two per cent.

The Balochistan secretary indicated that the demand to cut down completely the collection charges of FBR will be made in the first meeting of NFC.

The four provinces are also not happy on high interest rates of 18 per cent recovered by Islamabad on Cash Development Loans (CDL) given to the provinces. The federal government stopped providing CDL to provinces since the year 2000. But the provinces are still paying back these loans.

The repayment has been decided in a way by the federal government that debt servicing every year largely pays the interest charges and clears a small part of the principal amount.

The Sindh government received a little more than Rs50 billion CDL from the federal government. It paid back more than Rs86 billion but still it has to pay back more than Rs25 billion. The former finance minister of Sindh Syed Sardar Ahmad in his budget speech in 2006 and in 2007 had raised this issue and had demanded a “refund of entire excess amount given as debt servicing to Islamabad.’’

It is expected that before any formal meeting of NFC sometimes in late July or early August, the representatives of four provinces will make a joint representation to the federal government for the refund of the “unauthorised and unconstitutional’’ deduction of 5 per cent and two per cent collection charges on taxes and on oil and gas related revenue.

Politicians in Karachi and Quetta hope for a favourable outcome as Pakistan Peoples Party is now a common factor in the federal government and in all four provinces. There is understanding of PPP with PML(N), ANP and with MQM on many economic and social issues and hence despite some hiccups and occasional tensions, the federal government and four provincial governments may be able to come up with a resource distribution formula that may satisfy all.

Many optimists in Karachi and Quetta expect a “composite NFC formula’’ by August 14 next as the PPP-led coalition government wants to give a gift to the people on independence anniversary.

The Balochistan finance minister in his post-budget conference on Sunday quoted the prime minister giving a hint of a composite NFC formula that will not depend entirely on population alone.

The Balochistan political leadership wants inverse population density and poverty be given due weights in matter of resource distribution. “We are 44 per cent land mass of Pakistan -- almost half of the country -- with only 5 per cent population of less than 10 million,’’ argued an official of Balochistan government.

Population in Balochistan scarce and thinly spread. So any development project taken up in the province may not be able to service as many people as in densely populated Punjab or NWFP.

The Planning Commission in Islamabad has been applying Punjab and NWFP criterion of the number of beneficiaries of a development project in Balochistan.

“Even if a 10 per cent weight is given to inversely population density (IPD), we are sue to get 80 per cent of share in such an allocation,’’ a senior bureaucrat said. The Balochistan government also wants definition of poverty to be changed as about 90 per cent of population lives in abject poverty. Another 10 per cent weight to poverty in NFC formula will entitle Balochistan to a fair amount of resources with which it can take up its economic progress in next ten years or so.

But the Balochistan leadership is not ready to concede devolution of sales tax to provinces. None of the representatives of Balochistan government -- politicians and bureaucrats -- had a convincing answer when reminded that universally sales tax is a provincial and local tax.

They argued that it was a local tax under 1935 India Act. In 1949 it was partially federalised in Pakistan because the federal government in Karachi wanted resources to tackle mounting pressure of refugee influx. Till 1970, when East Pakistan was separated, a part of sales tax was provincial. It was in 1975 when the first NFC gave its award that sales tax was completely federalised.

“The sales tax constitutes almost 36 per cent of federal pool tax for provinces,’’ the Balochistan finance secretrary argued and his logic was that his government just cannot afford to give up share in this biggest chunk of taxes pool. The Balochistan government wants sales tax on its gas sales to Punjab, NWFP and Sindh at “points of transmission.” Balochistan businessmen say that if import and export of goods can be effectively monitored at the border districts of Balochistan with Sindh, Punjab, the NWFP and with Afghanistan and Iran and sales tax can be collected then perhaps the Balochistan government may consider it an exclusive provincial right.