Delays Hit 11th NFC as Most Working Groups Remain Inactive

The 11th National Finance Commission has yet to convene its second session, raising concerns over delays in finalizing a new revenue-sharing formula after a gap of more than 15 years.

According to Dawn, the second NFC meeting, originally scheduled between January 8 and January 15, has not taken place, while most of the commission’s eight technical working groups have failed to become operational.

The report said only two working groups have met so far, and even those have met just once. The remaining six groups have not held a single meeting since their formal notification in mid-December, effectively stalling progress on the 11th NFC award.

The only group that moved quickly was tasked with examining the fiscal impact of the merger of the former tribal areas into Khyber Pakhtunkhwa. Led by KP Finance Minister Muzammil Aslam, the group sought detailed calculations from the federal finance secretary on how the ex-Fata allocation would affect the shares of other provinces. Officials said the group has been unable to meet again due to the unavailability of those details.

Another working group, focused on divisible pool taxes and led by Finance Minister Muhammad Aurangzeb, met once in late January. That group is examining whether any taxes should be added to or removed from the divisible pool, including the possibility of excluding customs duty because international trade falls under federal jurisdiction.

None of the six remaining groups has held meetings. These include groups on vertical distribution of resources between the centre and provinces, national debt composition, tax to GDP improvement, straight transfers to provinces, horizontal distribution criteria, and sharing of federal expenditures incurred in provincial domains.

A finance ministry official said the delay was partly due to the overseas engagements of the finance minister and finance secretary. However, provincial representatives said their own group meetings were disrupted due to the unavailability of federal finance officials.

At the commission’s first meeting on December 4, the federal government proposed mobilising additional revenues of more than 5 percent of gross domestic product over the next three years, amounting to roughly Rs. 6.5 trillion annually at current levels. Provinces were asked to raise their own revenues to 3 percent of GDP through property taxes, agricultural income tax and sales tax on services.

The centre argued that higher revenues are needed to address a widening fiscal deficit, which has increased from about 4 percent to over 6.6 percent since 2010, contributing to rising debt levels following the 7th NFC award.

During the same meeting, Sindh objected to any discussion on provincial expenditures, arguing that the NFC’s constitutional mandate is limited to revenue distribution. The federal government has since sought legal opinion suggesting that expenditures may also be discussed within the NFC forum.

Under IMF-backed reform discussions, the centre has proposed greater provincial participation in funding disaster response, health programmes and major infrastructure projects. Punjab and KP have also shown informal support for reducing the weight of the population in the NFC distribution formula.

The NFC is constitutionally required to distribute the net proceeds of major federal taxes between the federation and the provinces. These include income tax, sales tax on goods, excise duties and export duties, among others specified by the president.

The 11th NFC was constituted on August 22 but its first meeting was repeatedly postponed before finally taking place in December. The previous 7th NFC award, announced in 2009, remained in force for 15 years instead of the constitutionally mandated five-year term.

Under the current formula, provincial shares are distributed based on population, poverty, revenue generation and inverse population density. Punjab receives 51.74 percent, Sindh 24.55 percent, Khyber Pakhtunkhwa 14.62 percent and Balochistan 9.09 percent.