Collection charges: Islamabad accused of not abiding by NFC Award recommendations

Provincial governments have complained that federal government has not been abiding by the recommendations of National Finance Commission (NFC) Award by deducting 2% collection charges from the gross divisible pool taxes, it has been learnt.
Sources told Business Recorder on Wednesday that this issue was also raised during the recent meeting of federal and provincial finance ministers, which was convened to monitor biannual meeting of implementation of the NFC Award. Sources said the Finance Minister Sindh, Murad Ali Shah, said that as per NFC recommendations 1% collection charges were to be deducted by the federal government from the gross divisible pool taxes but it was reportedly deducting 2%.
Punjab and Khyber Pakhtunkhwa followed Sindh and complained that the NFC recommended collection charges at the rate of 1%, but the federal government was deducting 1% as collection charges from divisible pool taxes while 2% from straight transfers. Sources said a committee with Federal Secretary Finance Dr Waqar Masood in the chair comprising finance secretaries of provinces was constituted on the issue of the rate of collection charges in the light of the record of the previous NFC Award. The committee would submit its findings to the NFC commission for consideration. It was also decided that the quarterly meeting of the NFC would be convened after six weeks from the end of each quarter and Finance Division would also share the working of the divisible pool taxes with the provinces along with the release order.
Federal Finance Secretary responded by saying that as per the NFC recommendations, the collection charges of divisible pool taxes had been reduced from 5% to 1%. However, in the case of straight transfers, it was decided that the net proceeds of royalty would be transferred as per the current practice, which in case of straight transfers was that the net proceeds would be derived after deducting collection charges @ 2%.
Masood also clarified that as per the Constitution, the income tax payable on the remunerations paid out of the Federal Consolidated Fund (FCF) was not part of the divisible pool taxes. An additional 1% income tax is being deducted on this account.
Senator Haji Muhammad Adeel and Abdul Ghafoor Mirza stated that they were part of the 7th NFC, which announced the Award and they were clearly of the opinion that collection charges would be @ 1% across the board. Sources said that the Federal Finance Minister Dr Abdul Hafeez Sheikh who is also Chairman NFC underlined the need to resolve the issue amicably and suggested for the formation of a committee to discuss the issue. Hence, the committee was constituted to resolve the issue.