The National Finance Commission, constituted in July 2020, has been dissolved, as President Asif Ali Zardari on Friday set up the 11th NFC to overhaul revenue-sharing and fiscal coordination between the federation and provinces.
According to a Finance Division notification shared by Advisor to the Finance Minister Khurram Schehzad, the new commission will “recommend distribution of revenues, grants, borrowing powers & cost-sharing on national projects.” The Finance Division, under the Rules of Business, 1973, will provide secretariat support.
Federal Finance Minister Muhammad Aurangzeb will chair the commission, which also includes provincial finance ministers. Other nominated members are Nasir Mahmood Khosa from Punjab, Dr Asad Sayeed from Sindh, Dr Musharraf Rasool Cyan from Khyber Pakhtunkhwa, and Farman Ullah from Balochistan.
Under clause (2) of Article 160 of the Constitution, the Terms of Reference empower the NFC to advise the president on the distribution of net proceeds of federal taxes, mechanisms for federal grants to provinces, exercise of borrowing powers, and burden-sharing of expenditures on provincial or trans-provincial subjects.
The commission is also tasked with cost-sharing for national projects and may consider “any other matter relating to finance referred to the commission by the president.”
The notification concluded: “The National Finance Commission constituted vide Notification No. S.R.O. 635(I)/2020 dated the 21st July, 2020 shall stand dissolved with immediate effect.”
According to The Express Tribune, an internal Finance Ministry meeting this week revealed that the federal government is considering linking 10-15% of provincial shares in federal taxes to improvements in education, health, population management, and climate indicators. The government also plans to reward provinces for enhanced tax collection by tying resource allocations to their tax efforts, according to sources.
In a joint working paper, Sajid Amin and Vaqar Ahmad argued that future NFC awards should gradually move from a needs-based allocation of resources to one focused on efficiency. They recommended reducing the population’s weight in the formula by at least 10% over the next two awards and by another 15% in the following two, bringing it down from 82% to 50%.
The federal government is already considering similar measures, with Planning Minister Ahsan Iqbal proposing to fix the population at 241.5 million for resource distribution purposes.
