KARACHI (January 13 2010): The State Bank of Pakistan has said that the Seventh National Finance Commission (NFC) Award has introduced significant changes in resource distribution mechanism, to the satisfaction of all units of the federation. According to SBP's first quarterly report on country's economy under the award, the federal government agreed to increase the share of provinces in divisible poll to 56.0 percent in the first year of NFC and to 57.5 percent in the remaining years of the award from existing level of 47.5 percent.

The federal government has also agreed to reduce collection charges to just one percent from the existing level of five percent, which will increase the actual transfers to the provinces from the divisible pool, the report said. To increase the share of Balochistan to 9.09 percent, the three provinces agreed to slash their percentage shares.

The NWFP is entitled to get an additional one percent of the total divisible pool, regarding its role as a frontline province in the continued war against terror, it added. This would be equivalent to 1.83 percent of the provincial poll. Similarly, the Centre also gave the option to the provinces by allowing them to collect sales tax on services.

The SBP said that another notable development was the consensus on using other parameters in addition to population for revenue sharing among the provinces. To resolve the issue regarding the use of indicator to assign weight to revenue generation or collection, NFC used the electricity consumption by collections of withholding tax, the report said, adding that in order to avoid conflicts on the distribution of 2.5 percent GST, the federal government agreed to transfer Rs 6.0 billion to Sindh from its own kitty.

Copyright Business Recorder, 2010