By Staff Reporter
ISLAMABAD: President Asif Ali Zardari on Friday constituted the 11th National Finance Commission (NFC), a pivotal body tasked with reshaping the contentious distribution of federal tax revenues between the central government and the country’s four provinces.
The commission, chaired by Finance Minister Muhammad Aurangzeb, includes the finance ministers of Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan as ex-officio members, according to a notification issued by the Finance Division. It also comprises four provincial representatives: former bureaucrat Nasir Mahmood Khosa for Punjab, economist Asad Sayeed for Sindh, former bureaucrat Musharraf Rasool Cyan for Khyber Pakhtunkhwa, and Farmanullah for Balochistan, bringing the total membership to nine.
The formation of the 11th NFC follows the expiration of the 10th NFC on July 21, 2025, and marks a renewed effort to address long-standing tensions over resource allocation. The commission is charged with recommending how to distribute the net proceeds of key taxes, including income and corporate taxes, sales taxes on goods, export duties on cotton, specified excise duties, and other taxes designated by the president, as outlined in clause (3) of Article 160 of Pakistan’s Constitution.
Beyond tax distribution, the NFC will advise on federal grants-in-aid to provinces, the exercise of borrowing powers by federal and provincial governments, and the sharing of financial responsibilities for national and trans-provincial projects. It will also tackle any additional fiscal matters referred by the president, according to the notification.
Pakistan’s fiscal framework has been strained by the 7th NFC Award, implemented in 2010 and extended annually due to disagreements over a new formula. That award, which significantly increased the provinces’ share of federal revenues, has been a point of contention for federal policymakers seeking to bolster the central government’s financial position. The 18th Amendment to the Constitution, passed in 2010, further complicates matters by mandating that no province’s share in a future award can be less than its share in the previous one, entrenching provincial entitlements.
For years, federal officials and political leaders have pushed for a revision of revenue transfers to ease pressure on the national budget, which has faced challenges from rising debt servicing costs and economic slowdown. The prolonged reliance on the 7th NFC Award, now in its 15th year, well beyond its intended five-year term, has underscored the urgency of forging a new consensus.
The commission’s terms of reference are expansive. In addition to tax distribution, it will address the sharing of financial burdens for federal responsibilities delegated to provinces, costs associated with trans-provincial initiatives, and expenses for national projects. These issues are critical as Pakistan navigates economic reforms tied to its International Monetary Fund program, which demands fiscal discipline amid inflationary pressures and a narrow tax base.
The Finance Division’s notification also formally dissolved the 10th NFC, formed in July 2020, which failed to produce a new award amid entrenched disagreements. The new commission now faces the daunting task of breaking this deadlock while adhering to constitutional safeguards and addressing the fiscal realities of a nation under economic strain.
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