In a bid to stabilise the rising fiscal deficit and address growing debt servicing costs, the federal government proposed an increase in consolidated revenues, aiming for an additional 5% of GDP, approximately Rs6.5 trillion annually, over the next three years, Dawn reported.
The proposal was discussed during the inaugural meeting of the 11th National Finance Commission (NFC), chaired by Federal Minister for Finance and Revenue Muhammad Aurangzeb. The meeting also sought legal guidance on whether provinces are obligated to follow federal expenditure priorities.
The Centre’s proposal includes increasing the Federal Board of Revenue’s (FBR) tax-to-GDP ratio by 3-3.5 percentage points over three years, which would bring it from the current level of about 10% to a higher share.
Additionally, the federal government urged provinces to increase their revenue collection to 3% of GDP—an increase from the current 0.28%—by focusing on taxes such as property, agriculture income, and sales tax on services.
These measures are part of the government’s strategy to address fiscal instability, with Pakistan’s fiscal deficit increasing from nearly 4% to over 6.6% since the implementation of the 7th NFC Award in 2010. The government highlighted the need for enhanced revenue efforts from both the Centre and the provinces to address the growing debt-to-GDP ratio.
Despite concerns about the federal government’s spending priorities, there was no discussion regarding reducing the provincial share of the divisible pool, which remains at 57.5%.
The federal government stressed that these fiscal challenges stemmed from the long-lasting impact of the 7th NFC award, which led to a squeeze on the country’s defense and development spending, as a large portion of resources were redirected towards debt servicing. To address this, both the Centre and provinces must focus on increasing revenue.
During the meeting, it was also agreed to form several thematic working groups to review key issues, including the vertical and horizontal distribution of resources and the fiscal impact of the merger of the tribal districts in Khyber Pakhtunkhwa. A special working group will focus on this merger and its financial implications.
A second meeting of the NFC is scheduled for January 8-15, 2026, after reports from the working groups are presented.
