The federal government has notified eight sub-committees under the 11th National Finance Commission (NFC), including a key panel on national debt utilization and the transfer of expenditures to provinces, following legal backing from the attorney general in response to objections raised by Sindh.
The move comes as Pakistan’s leading fiscal expert, Dr. Hafiz Pasha, highlighted a significant shortfall in provincial revenue shares. Speaking at a seminar organized by the Social Policy and Development Centre (SPDC), Dr. Pasha noted that, despite the constitutional requirement to allocate 57.5% of the divisible pool to provinces, they received only 45.8% in the last fiscal year after deductions for petroleum levies and cash surpluses.
Eight Sub-Groups to Shape 11th NFC Award
The finance ministry has constituted eight sub-groups to address critical issues for the upcoming 11th NFC award, the first major review since the 7th NFC award was agreed upon 15 years ago. The sub-groups, as detailed in the official notification, will focus on:
- Divisible Pool Composition: Recommending which taxes should be included or excluded from the divisible pool.
- Distribution Formula: Proposing how the net proceeds of taxes should be distributed between the federation and provinces, as per Article 160 of the Constitution.
- Horizontal Distribution: Devising a formula for distribution among provinces, including the selection of relevant indicators.
- Expense Sharing: Making recommendations on sharing financial expenses incurred by the federation for subjects within provincial domains, a group headed by Punjab’s finance minister, was formed after Sindh’s objections and subsequent legal opinion from the attorney general.
- Tax-to-GDP Ratio: Suggesting measures to improve the overall tax-to-GDP ratio.
- Straight Transfers: Deliberating on and making recommendations regarding straight transfers to provinces.
- FATA Merger: Recommending the merger of former FATA/newly merged districts and their share in the divisible pool.
- National Debt: Reviewing the composition and utilization of national debt.
Each sub-group includes federal and provincial finance ministers and secretaries, senior officials from the finance division, and other co-opted members as needed. The committees are tasked with making recommendations on their respective mandates, ranging from tax policy and revenue sharing to debt management and fiscal coordination.
The formation of these committees follows a legal opinion from the attorney general, which supported the federal government’s authority to form a working group on expense sharing, an issue Sindh had argued was outside the NFC’s constitutional mandate.
The 11th NFC award is expected to address longstanding disputes over resource allocation, fiscal responsibility, and the evolving financial relationship between the federation and provinces.
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