Divisible pool: Islamabad agrees to cut collection charges to one percent

The Federal Government agreed to reduce the collection charges from divisible pool under the 7th National Finance Commission (NFC) Award to one percent, said a team member of the architect of the NFC award former Finance Minister Shaukat Tarin.
A senior member of the former Finance Minister Shaukat Tarin''s team who was involved in negotiations and finalisation of the acclaimed consensus 7th NFC Award told Business Recorder that collection charges of the divisible pool taxes were brought down from five to one percent. The spirit of the NFC Award is that the Federal Government would deduct only one percent as collection charges from the divisible pool.
He also clarified that the straight transfers are not the part of divisible pool taxes and cannot be made part of the NFC, he added. Sources revealed that the provincial governments recently raised the issue with the high-ups of Finance Ministry that two percent collection charge deduction from the divisible pool was not in line with the spirit of the NFC Award.
Finance Minister Sindh, Murad Ali Shah, said that as per NFC recommendations one percent collection charge was to be deducted by the Federal Government from the gross divisible pool but two percent was being deducted. Finance Secretary, Punjab and Khyber-Pakhtunkhwa have also complained that the NFC recommended collection charges are not being implemented by the Federal Government which is deducting one percent as collection charges from divisible pool taxes and two percent from straight transfers.
Federal Finance Secretary''s response to the provincial finance secretaries on collection charges was that as per NFC recommendations the collection charges of divisible pool taxes were reduced from five percent to one percent. However, in case of straight transfers, it was decided that the net proceeds of royalty will be transferred as per current practice, which in case of straight transfers was that the net proceeds would be derived after deducting collection charges @ two percent, he clarified.
Waqar Masood also stated that as per Constitution the income tax payable on the remuneration''s paid out of the Federal Consolidated Fund (FCF) is not part of the divisible pool taxes. Additional one percent income tax is being deducted on this account, he added.
Senators Haji Muhammad Adeel and Abdul Ghafoor Mirza stated that they were part of the 7th NFC and were clearly of the opinion that collection charges would be at the rate of one percent 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 setting up of a Committee to discuss the issue. Hence, the committee was constituted to resolve the issue.
Sources said that a committee with 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. The committee would submit its findings to the NFC commission for consideration within six weeks.