ISLAMABAD: Amid ren­e­wed calls for transfer of greater financial reso­urces to the federation and local governments from the provinces, the government on Friday constitu­ted the 11th National Fin­ance Commission (NFC) to give a new award for sharing federal divisible resources among the Centre and the provinces.

The Ministry of Finance has formally notified the constitution of the nine-member commission after the approval of the provincial members (incl­uding private experts) to the commission and its terms of reference (ToR) by President Asif Ali Zardari, as required under Article 160(1) of the Constitution.

Finance Minister Muha­mmad Aurangzeb will be the chairman of the commission, which will also have four provincial fina­nce ministers and four non-statutory members representing the provinces.

The non-statutory members, one from each province, include Nasir Mahm­ood Khosa from Punjab in place of Tariq Bajwa. Sin­dh and KP have continued with their past members, Asad Sayeed and Musha­rraf Rasool Cyan, respectively. Farmanullah will represent Balochistan in place of Dr Kaiser Bengali in the commission.

The ToR set under Cla­u­se 2 of Article 160 require the 11th NFC to distribute between the Centre and the provinces the net proceeds of the five major tax categories, as explained in Clause 3 of the article.

These include taxes on income, including corporation tax, but not including taxes on income consisting of remuneration paid out of the Federal Consolidated Fund.

Also included in the list are taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed and export duties on cotton and such other export duties specified by the president. It also includes excise duties and any other taxes determined by the president.

In addition, the commission will examine the allocation of grants-in-aid from the federal government to provincial governments and address the powers of both levels of government regarding borrowing.

For the first time, three new subjects have been added to the list of discussions, suggesting the Centre wants to regain some fiscal space lost to provinces under the 7th NFC in 2009-10 without devolving authority.

This pertains to “issues to sharing of financial expense incurred or to be incurred by the federation in respect of subjects and matters falling within the domain of the provinces, issues relating to sharing of financial expense incurred or to be incurred by the federation or the provinces or both in respect of transnational matters, and issues relating to financial expense for national projects to be shared by the federation and the provinces”.

This apparently indicates that the Centre wants the sharing of expenses for natural calamities as they become more frequent by the day, as well as for some horizontal health programmes and major dams, highways, and motorways.

The Centre has been calling for an end to the population incentive and wants to replace it with social sector performance and activation of local governments.

On the other hand, an area that was included in the 10th NFC has now been removed pertaining to “exploring ways to reduce losses of state-owned enterprises and agreeing on a mechanism for sharing these losses between the federal government and the provincial governments”.

The NFC would also be required to make grants-in-aid by the federal government to the provincial governments and set powers and conditions for the federal and provincial governments for borrowing, besides assessment and allocation of resources to meet expenditures related to the government of Azad Jammu and Kashmir, Gilgit-Baltistan, and newly merged districts of KP.

In the 7th NFC award delivered in 2009 that remained effective for 15 years instead of the five-year constitutional term, the provincial share had increased to 57.5 per cent from about 47pc, which further increased to about 59pc given special allocations to Balochistan, KP and Sindh on different grounds and reduced the federal share to 42.5pc.

However, in subsequent years, the Centre imposed a petroleum levy (about Rs1.5tr) and secured about Rs1.5tr cash balances from the provinces, effectively reversing the financial balance to its favour.

On the other hand, the provinces failed to deliver their side of the bargain made in the 7th NFC to increase their revenue contribution by 0.5pc of GDP every year.

The 10th NFC award was constituted in May 2020 and then reconstituted in July 2020, but remained practically dormant. The 9th NFC was formed in April 2015 and underwent reconstitution in 2016, 2018, and 2019 due to changes in governments and the replacement of non-statutory members. However, it failed to conclude a new award because no meaningful and structured dialogue could be sustained.

As a result, multiple calls from various quarters, including the Ministry of Finance, the armed forces and the International Monetary Fund, to rebalance the transfer of a larger chunk of divisible pool resources to the provinces under the 7th NFC award have remained unaddressed.

Also, the 7th NFC award announced in 2009 continued with annual extensions and remains in place even now, instead of the constitutional term of five years that ended on June 30, 2015.

Published in Dawn, August 23rd, 2025