landmark NFC Award announced; Centre to cut tax collection charges from 5pc to 1pc; provinces to collect ST on services; Balochistan to get Rs 83 bn of provincial pool; Sindh to get Rs 6 bn more
LAHORE: The Centre and the provinces have finally achieved a landmark consensus on the 7th National Finance Commission Award, amid rare applauses and praises for each other.

In marathon negotiations spanning over three days in Lahore, not only the Centre sacrificed its share under the vertical arrangement in an endeavour to give additional financial incentives to the provinces but also the Punjab showed flexibility on contentious issues under the horizontal inter-provincial sharing of resources.

Talking to media persons at the conclusion of parleys here on Friday evening, Finance Minister Shaukat Tarin, who is also chairman of the 7th NFC Award, said the provincial share of the divisible pool would increase from the present 47.5 per cent to 56 per cent in the first year of NFC (2010-2011) and 57.5 per cent in the remaining years of the award under the vertical distribution of resources. He claimed that this share would virtually be over 60 per cent.

Tarin said the Centre recognised the needs of the federating unites for a larger share in the divisible pool, as they are assigned the task of providing basic services like health, education, water supply and sanitation to the masses. He said the size of the divisible pool was proposed to be increased in the national interest and provincial harmony.

“The federation will become stronger if the provinces achieve the financial autonomy and become more powerful,” he added. Accompanied by the four provincial chief ministers and the finance ministers, Tarin told journalists the federal government has agreed to cut tax collection charges from 5.0 per cent to 1.0 per cent and this amount would also be added to the divisible pool. About the thorny issue of sales tax on services, he said the NFC recognised sales tax on services as a provincial subject and it mightbe collected by the respective provinces. He said the federal government was aware of its responsibilities and it would make all efforts to boost the tax revenue. “We are increasing tax collection and trying to reduce expenditures in order to provide more and more funds to the provinces,” he added.

About the horizontal distribution among the provinces , he said the Punjab would now get 51.74 per cent, Sindh’s share will be 24.55 per cent, the NWFP will receive 14.62 per cent share while Balochistan will get 9.09 per cent.

About the break-up of unprecedented multiple indicators and their weightages, the finance minister said population will be given 82.0 per cent weightage, poverty/backwardness 10.3 per cent, revenue collection/generation 5.0 per cent and inverse population density 2.7 per cent.

He said the federation and the Punjab, Sindh, and the NWFP accepted the special needs of Balochistan and agreed to provide it Rs 83 billion of the provincial pool in the first year of the Award. He made it clear that any shortfall in this amount would be made up by the federal government from its own resources. “This arrangement for Balochistan would also remain protected through the remaining four years of the award,” he opined.

The minister said the Centre and all the four provinces recognise the role of the NWFP as a frontline state against the war on terrorism. “Apart from the federal government’s commitment to bear all expenditures of the war on terror, the provinces agreed to give one per cent of the total divisible pool to the province as an additional resource during the award,” he said. He said this amount would be equivalent to 1.83 per cent of the provincial pool.

Tarin said Sindh would receive an additional transfer of Rs 6 billion from the federal government, which is equivalent to 0.66 per cent of the provincial pool. The minister thanked all the ministers for their input in negotiations and playing a decisive role in overcoming differences over various key issues.

He especially thanked Punjab Chief Minister Shahbaz Sharif. He said the Punjab has made sacrifice by agreeing to a multiple formula. He added that the Punjab chief minister had also safeguarded rights of his people.

The multiple indicators under 7th NFC Award

Multiple Indicators Weights

1 Population 82.0%

2 Poverty/Backwardness 10.3%

3 Revenue Collection/Generation 5.0%

4 Inverse Population Density 2.7%



Comparison of present and new NFC Award

Province Share under Share under 6th First Year share Remaining yearly

7th NFC Award Award in rupees under 7th award share under 7th award

Punjab 51.74% Rs 419b Rs 471b Rs 938b

Sindh 24.55% Rs 197b Rs 223b Rs 445 b

NWFP 14.62% Rs 118b Rs 133b Rs 265b

Balochistan 9.09% Rs 53b Rs 83b Rs 165b