ISLAMABAD: Nearly two months after its inaugural session was held amid high expectations, the National Finance Commission (NFC) appears to have lost momentum, with its second meeting — originally planned for the second week of January — yet to be scheduled.
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Sources familiar with the matter said that the NFC’s eight technical working groups have also failed to make meaningful progress. Only two groups have met once since their formal notification in mid-December, while the remaining six have not convened at all.
Following the first NFC meeting on December 4, officials from the Ministry of Finance and provincial governments had announced a roadmap under which the second session would be held between January 8 and 15, followed by regular monthly meetings aimed at finalising recommendations for the long-delayed 11th NFC Award.
However, that timeline has not materialised.
The only group to begin work promptly was tasked with examining the fiscal impact of the merger of the former Federally Administered Tribal Areas (FATA) into Khyber Pakhtunkhwa and its implications for provincial shares under the NFC.
Headed by KP Finance Minister Muzammil Aslam, the group sought detailed calculations from the federal finance secretary on how the ex-FATA allocation would affect the shares of other provinces, following concerns raised by Punjab. More than seven weeks later, the group is still awaiting those figures, preventing it from holding a second meeting.
Another working group, led by Finance Minister Muhammad Aurangzeb and focused on divisible pool taxes, met once in late January. The group is examining whether any new taxes should be added to — or existing ones removed from — the divisible pool. The federal government is reportedly reviewing the legal and constitutional basis for excluding customs duty, arguing that international trade falls solely under federal jurisdiction.
The remaining six working groups have yet to hold any sessions, highlighting a lack of urgency in advancing consultations on the redistribution of shared resources between the federation and the four provinces.
An official at the Ministry of Finance attributed part of the delay to overseas travel by the finance minister and finance secretary, but noted that most working groups are led by provincial finance ministers. Meanwhile, a provincial chief minister said his group’s meetings — as well as the main NFC session — were hampered by the unavailability of federal finance representatives.
The inactive groups cover key areas, including vertical distribution of resources between the centre and provinces, national debt composition, improving the tax-to-GDP ratio, straight transfers to provinces, criteria for horizontal distribution, and sharing of federal expenditures incurred in provincial domains.
During the December 4 meeting, Sindh objected to proposals to discuss provincial expenditures, arguing that the NFC’s constitutional mandate is limited to revenue distribution. The federal government has since sought legal advice suggesting expenditures could also be debated within the NFC framework.
At the inaugural session, the centre indicated plans to mobilise additional consolidated revenues exceeding 5 per cent of GDP over the next three years — roughly Rs6.5 trillion annually at current levels — while urging provinces to raise their own revenues to 3pc of GDP through measures such as property taxes, agricultural income tax and sales tax on services.
The federal government framed these targets as essential to containing a widening fiscal deficit, which has risen from about 4pc to over 6.6pc since 2010, contributing to a sharp increase in the debt-to-GDP ratio.
A special working group was also formed at KP’s request to assess the fiscal and social impact of the tribal districts’ merger and determine appropriate resource allocations.
The 11th NFC was constituted on August 22 to formulate a new award governing the sharing of federal divisible resources. Its first meeting, initially planned for late August, was repeatedly postponed before finally taking place in December.
Under Pakistan’s Constitution, the NFC is responsible for distributing proceeds from major taxes — including income tax, sales tax, excise duties and specified export duties — between the federation and the provinces.
The last major award, the 7th NFC finalized in 2009, remained in effect for 15 years instead of the constitutionally mandated five. That award increased the provincial share to 57.5pc, later rising to about 59pc after special allocations, reducing the federal share to 42.5pc.
In subsequent years, however, the centre offset this balance through measures such as a petroleum levy and withdrawals of provincial cash balances. Provinces, on their part, failed to meet commitments to steadily raise their own revenues, while similar pledges by the centre also went unmet.
Currently, provincial shares are calculated using a formula based on population, poverty, revenue collection and inverse population density. Under this framework, Punjab receives 51.74pc, Sindh 24.55pc, Khyber Pakhtunkhwa 14.62pc, and Balochistan 9.09pc.
