Explainer: What is the NFC Award the Pakistan govt is considering changing?

While rumors have floated about amendments to Pakistan’s National Finance Commission (NFC) Award numerous times, there may finally be some truth to them.

Sources have been talking about another constitutional amendment—possibly the 27th—that would change the NFC Award formula, the financial arrangement that determines how federal revenues are distributed between the center and the provinces.

Nukta explains the proposed changes to the Award and why they're generating controversy.

What is the NFC Award?

The National Finance Commission (NFC) Award is a constitutional mechanism under Article 160 of Pakistan’s Constitution that governs how tax revenues are shared between the federal government and the provinces.

The current (7th) NFC Award, implemented in 2010, allocates 57.5% of divisible pool revenues to the provinces—mostly based on population.

Key provisions of Article 160

Article 160 provides the constitutional framework for how tax revenues are shared between the federal government and the provinces. It requires the formation of the National Finance Commission (NFC) and guides how revenue is distributed through NFC Awards.

1- Formation of NFC (Clause 1)

The President must constitute the NFC every five years.
The NFC includes: the federal finance minister, the finance ministers of each province, other members as the president may appoint.

2- Distribution of Revenues (Clause 2)

The NFC recommends how net proceeds of taxes (like income tax, sales tax, customs duties, etc.) are divided between the federation and the provinces, and among provinces.

3- Consultative Process

Recommendations of the NFC are made after consultation, ensuring consensus among federal and provincial representatives.

4. Additional Grants and Support (Clause 3)

The NFC may also suggest grants-in-aid to provinces in need, and other financial arrangements to address backwardness or poverty.

5. Implementation

Once the NFC makes its recommendations, the president formally issues the NFC Award, which then governs the financial relationship between the center and provinces.

What is the proposed 27th Amendment?

The proposed 27th Constitutional Amendment is reportedly being considered by the federal government as a legal route to change the NFC Award formula, especially if no consensus is reached with the provinces.

This amendment could reduce the provincial share of revenues from the divisible pool (currently 57.5%) and change the formula that allocates funds, shifting from a mostly population-based system to one that considers tax collection performance, poverty levels, population, backwardness or underdevelopment, transfer of federal programs (like BISP and development projects) to provinces, and forcing provinces to generate more own-source revenue.

Why is it controversial?

Changing the NFC Award through a constitutional amendment—instead of mutual agreement—is highly controversial because

• It bypasses the consensus-based process traditionally used to set NFC terms.
• Provinces, especially smaller ones like Balochistan and KP, depend heavily on federal transfers.
• It could be viewed as federal overreach, upsetting the balance of power.
• The Constitution, under Article 160(3A), protects the share of provinces, making changes legally and politically sensitive.

“The 27th Amendment, if introduced, would be a major shift in federal-provincial relations. It suggests the center is running out of room to maneuver fiscally, and is now considering unprecedented steps,” said said an expert.
“If done without provincial buy-in, it could deepen political fault lines and undermine the spirit of cooperative federalism,” he added.

The amendment has not been finalized or tabled in Parliament yet and it remains a proposal under discussion, mainly as a backup plan if consensus fails. However, the IMF and financial pressures are major driving forces behind this move.