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

Vertical Distribution

Provincial share increased from 48.75% to 56% in the first year

The provincial share would increased to 57.5% after the first year

Horizontal Distribution

Indicator

Weight

Population

82%

Poverty

10.30%

Revenue

5.00%

Inverse Population Density

2.70%

Province Wise Weightages

 

Weight

Punjab

Sindh

NWFP

Balochistan

Population

82.00%

57.36%

23.71%

13.82%

5.11%

Poverty

10.03%

23.16%

23.41%

27.82%

25.61%

Revenue

5.00%

44.00%

50.00%

5.00%

1.00%

IPD

2.70%

4.32%

7.18%

6.51%

81.99%

Province Wise Shares

 

Punjab

Sindh

NWFP

Balochistan

Old Share*

53.01%

24.94%

14.88%

7.17%

New Share

51.74%

24.55%

14.62%

9.09%

Difference

-1.27%

-0.39%

-0.26%

1.92%

*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

For NWFP

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

For Balochistan

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.