The federal government has scheduled the first meeting of the National Finance Commission (NFC) for December 4, initiating work on a new formula for distributing federal revenues between the Centre and the provinces. Finance Minister Muhammad Aurangzeb will chair the session, which will include provincial finance ministers and technical members, The Express Tribune reported.
According to the agenda, the maiden meeting will open with a general discussion on the strategy for preparing the 11th NFC Award, including the proposed formation of sub-groups to handle thematic areas. The provinces and the federal government will also present their fiscal positions.
The Centre aims to reduce the provincial share from the current 57.5% of the divisible pool, either through a lower percentage or by shifting expenditure responsibilities. Any reduction, however, would require a constitutional amendment. Prime Minister Shehbaz Sharif has already stated that customs duties should be treated as federal revenue, despite their inclusion in the 7th NFC Award.
For the ongoing fiscal year, provinces are projected to receive Rs8.2 trillion based on an estimated Rs14.13 trillion FBR collection. Of this amount, Rs892 billion relates to customs duties.
Ahead of the meeting, Khyber Pakhtunkhwa has taken a firm position on its fiscal claims. KP Chief Minister Sohail Afridi said he would attend the meeting, calling it “a matter of the province’s fiscal rights,” but stressed that the Centre must first settle over Rs3 trillion in outstanding liabilities and honour its commitment to construct an irrigation canal. He made the remarks while speaking to journalists in Islamabad on Friday.
KP officials have already indicated that the province will seek a larger share in the next NFC award on grounds of revenue generation, population changes after the merger of tribal districts, and inverse population density. The KP government has said the Centre owes Rs3 trillion in net hydel profit and NFC-related dues. It also noted that only Rs165 billion of the Rs700 billion committed for merged districts has been released over seven years.
KP has further pressed the federal government to fulfil its promise of funding the Chashma Right Bank Canal, stating that the province has set aside its share but the Centre has not met its obligation. The province also raised concerns that Punjab’s ban on wheat transportation to KP pushed up local wheat and bread prices.
The upcoming NFC discussions are taking place amid recurring claims that the 7th NFC’s 10% increase in the provincial share deepened federal fiscal stress. The 2010 award was premised on raising the tax-to-GDP ratio by 1% annually, but the ratio has remained stuck around 10% for the past five years.
Recent findings from the IMF’s Governance and Corruption Diagnostic Assessment underline structural challenges in Pakistan’s tax system. The report highlights poor harmonisation between federal and provincial taxes, particularly in sales tax on goods and services, resulting in disputes, uncertainty and opportunities for corruption.
The IMF noted slow progress at the National Tax Council and pointed to the absence of a medium-term tax strategy, saying Pakistan’s complex tax framework increases evasion risks and administrative discretion.
