Pakistan forms 11th National Finance Commission to review federal-provincial revenue sharing

In a significant move aimed at restructuring fiscal arrangements between the center and the provinces, the president of Pakistan has constituted the 11th National Finance Commission (NFC) under Clause (1) of Article 160 of the Constitution.

This newly formed commission replaces the 10th NFC, which was constituted in July 2020 and now stands dissolved with immediate effect.

The Federal Minister for Finance will chair the commission, which includes the Finance Ministers of all four provinces - Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan - as statutory members.

In addition, four expert members have been appointed to represent each province: Nasir Mahmood Khosa from Punjab, Dr. Asad Sayeed from Sindh, Dr. Musharraf Rasool Cyan from Khyber Pakhtunkhwa, and Farman Ullah from Balochistan.

The commission has been constituted to recommend a new NFC Award, a constitutional mechanism for the distribution of financial resources between the Federation and the Provinces. The Finance Division will serve as the secretariat of the NFC, as per the Rules of Business, 1973.

What is the NFC and Why does it matter?

The National Finance Commission is a constitutionally mandated body formed periodically under Article 160 of the Constitution of Pakistan.

Its main function is to recommend how federal revenues, particularly taxes, should be distributed between the central government and the provinces. The commission specifically addresses the distribution of the divisible pool of taxes between the Federation and the provinces.

The most recent NFC Award, the 7th NFC Award of 2009, remains in effect due to the inability of subsequent commissions to reach consensus on a new formula. That award marked a historic shift in fiscal federalism, increasing the provincial share of federal revenues and introducing new criteria such as poverty and revenue generation, alongside population.

On the other hand, the 10th NFC, formed in July 2020 through S.R.O. 835(1)/2020, failed to produce a new award due to political disagreements and concerns over revenue constraints. With the new commission now in place, the government aims to tackle longstanding issues around equitable distribution, fiscal autonomy, and revenue generation, particularly in the context of Pakistan’s ongoing economic challenges.