ISLAMABAD:
The federal government has constituted the 11th National Finance Commission (NFC) to frame a new NFC Award, replacing the 7th Award, which has remained in effect since May 2010 despite being meant for only five years.
The 7th NFC Award has significantly strained Pakistan’s fiscal framework, with 57.5% of federal tax revenues transferred to provinces, along with additional allocations for Khyber Pakhtunkhwa and Sindh. Moreover, the federal government bears the expenses of Gilgit-Baltistan, Azad Jammu & Kashmir, and ex-FATA regions, bringing total outlays close to 62% of federal revenues.
Experts warn that this arrangement has limited Pakistan’s ability to cut taxes, worsened fiscal deficits, and weakened economic stability. Despite collecting over Rs12 trillion in taxes last year, the federal government faced an Rs8 trillion deficit. Analysts argue that the award’s structure forces the federal government to hand over most new revenues to provinces, leaving little fiscal room to manage debt and essential expenditures.
Economists suggest reforms such as allowing provinces to retain their current share but enabling the federal government to keep 80% of future revenue increases, transferring BISP responsibilities to provinces, and bringing agricultural income into the federal tax net.
They also highlight constitutional challenges, as the 18th Amendment allows provincial shares to increase but not decrease, meaning a constitutional amendment may be required for meaningful reforms.
Observers emphasize that for Pakistan’s long-term fiscal health, the 11th NFC Commission must prioritize national interest over political divisions.
