• Commission tasked to develop fresh methodology to share federal divisible resources among Centre, provinces
• Federation pushes for provincial govts to share expenses on natural calamities, health programmes, infrastructure projects
• Attempts to constitute 9th and 10th NFCs failed to yield new award

ISLAMABAD: The Centre on Thursday postponed the inaugural session of the newly constituted National Finance Commission (NFC) on the request of the Sindh government “due to the impending flood situation”.

A notification issued to all official and private members, as well as provincial and federal finance secretaries, said the date and time of the rescheduled meeting would be communicated later.

The 11th NFC was constituted on August 22 to prepare a new award for sharing federal divisible resources between the Centre and the provinces. Its first meeting had initially been called for August 27 but was deferred to August 29 without explanation.

This time, the Sindh government requested a postponement, citing precautionary measures required as heavy floods were expected to enter the province over the next two days from Punjab.

Chaired by Finance Minister Muhammad Aurangzeb, the NFC includes four provincial finance ministers and four non-statutory members, one from each province.

The terms of reference set under clause 2 of Article 160 require the 11th NFC to distribute between the federation and provinces the net proceeds of five major tax categories as explained in clause 3 of Article 160.

These include: taxes on income (including corporation tax but excluding salaries paid out of the Federal Consolidated Fund); taxes on the sale and purchase of imported, exported, produced, manufactured, or consumed goods; export duties on cotton and other duties as specified by the president; excise duties; and any other taxes specified by the president.

The notification also mandates recommendations on grants-in-aid by the federal government to the provinces, and on the exercise of borrowing powers by both tiers of government.

The new NFC is further tasked with considering sharing of expenditures incurred, or to be incurred, by the federation in respect of matters falling within the provinces’ domain; expenditures on trans-national issues; and financial responsibility for national projects to be shared by both the Centre and provinces.

This apparently indicates the Centre’s intention to push for provincial contributions toward natural calamities, horizontal health programmes, major dams, highways, and motorways. The federal government has also been advocating for an end to population-based incentives, replacing them with social sector performance, along with activation of local governments.

The NFC will also determine grants-in-aid from the Centre to the provinces, set borrowing powers and conditions for both, and assess resources required to meet expenditures of Azad Jammu and Kashmir, Gilgit-Baltistan, and the newly merged districts of Khyber Pakhtunkhwa (erstwhile Fata).

The 7th NFC award, announced in 2009, remained effective for 15 years instead of the constitutional five years. It raised the provincial share from about 47 per cent to 57.5pc, which further increased to nearly 59pc through special allocations to Balochistan, KP and Sindh, reducing the federal share to 42.5pc. In later years, however, the Centre offset this balance by imposing a petroleum levy of about Rs1.5 trillion and appropriating a similar amount from provincial cash balances. For their part, the provinces failed to honour the 7th NFC commitment to raise their revenue contribution by 0.5pc of GDP annually.

The 10th NFC, constituted in May 2020 and reconstituted in July the same year, remained inactive. The 9th NFC, set up in April 2015 and reconstituted in 2016, 2018 and 2019 following government changes and replacement of non-statutory members, also failed to reach a new award due to the absence of sustained dialogue.

As a result, repeated calls from the finance ministry, the armed forces and the IMF to rebalance the resource transfer under the 7th NFC award remain unaddressed. The award of 2009 continues through annual extensions, despite its constitutional term ending on June 30, 2015. The Constitution stipulates that provincial shares under each NFC award cannot be reduced, and that any new award requires consensus among all five parties — the Centre and the four provinces.

Under the 7th NFC award, the provinces collectively received 57.5pc of divisible pool taxes, in addition to revenues from income tax, wealth tax, capital value tax, general sales tax, customs duties, and federal excise. Their horizontal shares are based on population, poverty, revenue collection and inverse population density, giving Punjab 51.74pc, Sindh 24.55pc, KP 14.62pc and Balochistan 9.09pc.

Published in Dawn, August 29th, 2025