There is a debate on what taxes should be included in the divisible pool for redistribution of NFC award among provinces and which should be left solely at the disposal of provincial governments.

Presently, the main taxes included in this pool are income tax, general sales tax (GST), wealth tax, capital gains tax, custom duties, etc, but this has not always been the case. In the past, some of these taxes were provincial or federal in nature or even partially provincial and partially federal.

For example, before 1951 the sales tax was the exclusive domain of provincial governments but that year it was partly federalised to the extent of 50 per cent. In 1974, sales tax was completely federalised by Zulfikar Ali Bhutto. Similarly, in 1997 Prime Minister Nawaz Sharif brought about changes in NFC formulation and included receipts under custom duties in the divisible pool.

The share of different federal taxes that contribute to the overall revenue of federal government and the divisible pool is mentioned in the Economic Survey of Pakistan 2013-2014. It states that the share of direct tax increased from 31.5 per cent in 2005-06 to 38.2 per cent in 2012-13 and is expected to increase further to 39.4 per cent in 2013-14.

On the other hand, share of sales tax in total tax collection increased from 41.3 per cent in 2005-06 to 43.3 per cent in 2012-13 and is expected to reduce to 42.6 per cent. According to the survey, the share of custom duty in indirect taxes has reduced from 28.3 per cent in 2005-06 to 19.9 per cent in 2012-13 and expected to reduce further to 18.6 per cent in 2013-14.

The share of federal excise duty in indirect taxes has declined from 11.3 per cent in 2005-06 to 10.1 per cent in 2012-13 and expected to increase to 11.1 per cent in 2013-14. Sales tax as an important consumption tax accounts for 70.3 per cent of the indirect taxes received by the government.

However, the composition of divisible pool is not fixed and the Constitution gives powers to the president to amend it. Under Article 160 of the Constitution of Pakistan, the taxes that may contribute to divisible pool include (i) taxes on income, including corporation tax, but not including taxes on income consisting of remuneration paid out of the federal consolidated fund; (ii) taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed; (iii) export duties on cotton, and such other export duties as may be specified by the president; (iv) such duties of exercise as may be specified by the president, and (v) such other taxes as may be specified by the president.

As the divisible pool contributes a lot to the progress and development of the federation and its federating units, there is a need to raise tax revenue collected by the federal government. For this purpose, a comprehensive strategy is being devised at the government level and comprises three categories, such as broadening tax base, removing anomalies in the taxation system, and improving tax compliance.

H M Yusuf, former vice president of the Institute of Chartered Accountants of Pakistan (ICAP), believes "tax revenues can be increased by adopting in-discriminatory tax policies, making tax evasion a serious crime, curbing smuggling to avoid evasion of customs duties, documenting the economy, rooting out corrupt elements from the Federal Board of Revenue (FBR) and bringing more and more people in the tax net."

At the same time, he says, "it is highly imperative to build trust among the general public. If they are convinced that the taxes they pay will be spent on their welfare and others will not be able to avoid paying these, they will cooperate. But if they fear losing competitive edge to tax evaders, they will also find ways to avoid paying taxes," he concludes.