THE scope of work outlined for the newly constituted 11th National Finance Commission makes it clear that negotiations between the centre and the provinces over tax resource distribution will not be smooth.

The new TORs for the commission signal Islamabad’s intent to reclaim the fiscal space ceded to the provinces under the seventh NFC award 15 years ago. The move will be viewed by the provinces as the erosion of their hard-won financial autonomy, and a pushback is inevitable. The new deliverables expect the provinces to shoulder the costs of large development projects, contribute towards federal expenses in the aftermath of natural disasters and finance federal schemes with a provincial impact.

The centre is also considering firm allocations from the divisible pool for ICT, AJK and GB, which are its responsibility. If agreed, this would effectively allow it to bypass the need to amend the Constitution’s Article 160(3A), which safeguards the provincial share of 57.5pc, to boost its own share. Transfers to the provinces under the award rise to about 59pc if special allocations for KP, Balochistan and Sindh are included.

The new commission has been constituted at a time when the chorus for rebalancing the resource distribution formula under the seventh award is getting louder, with the establishment, finance ministry and IMF supporting a considerable raise in the federal share.

With discussions under the defunct ninth and 10th commissions having collapsed, Islamabad has significantly reversed the balance in its favour by imposing a petroleum development levy and securing cash balances from the provinces in recent years. The provinces did not actively oppose these steps but are not in the mood to give up their share under the award.

There are reasons for the centre’s frustration with the present resource distribution arrangement. Not only does it bear the cost of debt payments, defence and trans-provincial infrastructure, the provinces expect it to help them during natural disasters and finance social protection. Its depleted purse cannot foot the bill. Provinces, on the other hand, resent the centre’s attempts to shift its inefficiencies — ranging from a bloated bureaucracy to fiscal mismanagement — to them, thus undoing their financial autonomy.

The solution to the centre’s financial woes does not lie in reclaiming a greater share of resources but raising the tax-to-GDP ratio to increase the size of the pie, and halting wasteful expenditure. That said, the provinces also need to transfer fiscal resources to the local governments and increase their tax revenues.

The discussions for a new award should not end in a showdown between the centre and the provinces. It should be used as an opportunity to find a solution to Pakistan’s myriad economic and fiscal challenges.

Published in Dawn, August 24th, 2025