After a gap of 8 years (1997 NFC Award expired in 2002), consensus has been reached between Federal and Provincial Governments regarding distribution of revenues. In my view credit goes largely to Government of Punjab for acceding to multiple criteria for horizontal distribution and to some degree to Federal Government which agreed to considerably increase provincial share in the federal pool so that provinces which experience lower share in horizontal distribution get substantial increase in absolute amount. The award can be found here. Some of the salient features of new NFC Award are presented below.
Size of Divisible Pool
Collection charges decreased from 5.2% to 1%
As a consequence size of Divisible Pool enhanced by Rs. 68 billion
Gain of approximately Rs.39 billion for Provinces
Provincial share increased from 48.75% to 56% in the first year
The provincial share would increased to 57.5% after the first year
Inverse Population Density
Province Wise Weightages
Province Wise Shares
*If subventions are also considered.
GST on Services
Federal Government recognized that the Sales Tax on Services is a Provincial subject. NFC decided that it might be collected by Provinces if so desired
Provinces will gain Rs. 30 billion
Gas Development Surcharge
Royalty and GDS clubbed into one rate per MMBPU (to be worked out)
Royalty would be distributed based on existing mechanism
GDS would be distributed after making adjustments to the rate
Share of provinces in GDS will increase (except for Sindh)
Relief Measures for NWFP and Balochistan
NFC recognized the role of NWFP as front line province against War on Terror
Federal Government to bear all expenditure
1% of net proceeds of Divisible Pool ear-marked for NWFP
As the most under-developed province of Pakistan and having peculir geographic and economic characteristics, Balochistan needed special attention of NFC. In the horizontal distribution, its provincial pool has been increased to 9.09% (approximately twice the 2009-10 Divisible Pool transfers). Moreover, Federal Government has promised to cover any short fall due to lower federal revenues.
Contributed by Mian Muhammad Kashif Saeed.