Centre seeks to retain Rs1.2 trillion from provincial NFC shares for FY27, says KP finance adviser 

The federal government has proposed freezing provincial transfers under the National Finance Commission (NFC) Award at the current year’s actual level to retain an additional Rs1.2 trillion in fiscal year 2026-27, Khyber-Pakhtunkhwa Chief Minister’s Finance Adviser Muzzammil Aslam said.

Speaking after consultations with the federal government, Aslam said the Centre wanted to retain the increase expected in provincial shares because of higher federal tax collection next year.

The government had initially projected Rs8.2 trillion in transfers to the provinces during the current fiscal year, but actual payments are expected to remain around Rs7.5 trillion because of the FBR’s shortfall. 

Aslam said the Centre wanted to keep provincial transfers at that level during FY27 and retain the additional amount through an arrangement endorsed by the National Economic Council.

He maintained that the NEC was not authorised to deduct or retain shares determined under the NFC Award and said any such arrangement would require legal cover.

The NEC is chaired by the prime minister and includes the chief ministers of all four provinces. It approves national development plans and the macroeconomic framework.

The federal government postponed the NEC meeting for a third time on Monday amid unresolved discussions over provincial contributions, development allocations and the upcoming budget.

Aslam said there was no agreement between the Centre and the provinces on the Rs1.2 trillion proposal or the distribution of the federal Public Sector Development Programme.

He also said differences remained between the Finance Ministry and the International Monetary Fund over the proposed budget framework.

The Express Tribune reported, citing government sources, the IMF was reluctant to endorse the use of the NEC to retain provincial NFC shares. The Finance Ministry considered several options to seek the lender’s approval, including possible contact with the IMF managing director.

Provincial contributions

The Centre initially sought Rs1.7 trillion from the provinces before reducing its demand to around Rs1.2 trillion.

Based on their NFC shares, Punjab may be asked to contribute about Rs650 billion, Sindh Rs300 billion, Khyber Pakhtunkhwa Rs180 billion and Balochistan Rs110 billion.

Aslam said the amount was being sought in addition to provincial cash surpluses and could push provincial budgets into deficit.

He said the provinces may be willing to contribute towards strategic requirements, but the transfers could not legally be made solely through an NEC decision.

Government sources said the additional resources were being sought for defence spending, strategic water projects, corporate tax relief and reductions in withholding taxes on property transactions.

The Rs1.2 trillion demand represents more than half of the Rs2.2 trillion revenue shortfall recorded by FBR over two fiscal years. The revenue gap has also contributed to an increase in the petroleum levy on petrol to Rs 116 per litre.

KP finance advisor said the lack of consensus over provincial resources and budget estimates had created uncertainty over the timing of the FY27 budget, adding that it was unclear whether the Khyber Pakhtunkhwa chief minister would attend the rescheduled NEC meeting or not.