• Aurangzeb-led commission to chart strategy, form sub-groups for new award
• Provinces, Centre to give 10-minute briefings on fiscal positions
• Terms of reference cover distribution of five key federal tax categories
• Commission to debate cost-sharing for provincial, national, transnational projects
• PM expected to engage with leadership of key allies before formal sitting

ISLAMABAD: After yet another rescheduling, the federal government has convened the inaugural meeting of the 11th National Finance Commission (NFC) on Dec 4 to set the housekeeping framework for subsequent technical, financial and legal discussions on horizontal and vertical resource sharing among the federating units.

According to notices sent to the provinces, the first NFC meeting, to be presided over by Federal Finance Minister Muhammad Aurangzeb, will take up three agenda items. It will begin with general discussions on “strategy for deliberations on the 11th NFC award, including proposed formation of sub-groups for deliberations on thematic areas, etc”.

This will be followed by 10-minute presentations each by the four provincial governments and the Ministry of Finance on their respective fiscal positions. The commission will finally set the schedule and timelines for future NFC meetings, most likely to be held in all federal and provincial capitals, until the conclusion of its deliberations.

Sources told Dawn that the finance ministry had earlier issued notices to the provinces for the first meeting on Dec 3 along with the agenda, but the date was changed the same day to Dec 4.

The 11th NFC was constituted on Aug 22 to finalise a new award for sharing federal divisible resources between the Centre and the provinces.

The first meeting was originally scheduled for Aug 27, then delayed to Aug 29 for unspecified reasons. This, too, was postponed on the request of the Sindh government due to flood-related engagements. The session was later rescheduled for Nov 17, then Nov 18, and again deferred at the desire of the Prime Minister’s Office.

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

The terms of reference set out in Clause 2 of Article 160 require the commission to recommend the distribution of the net proceeds from five major tax categories between the federation and the provinces. These include taxes on income, including capital value tax and corporation tax, but excluding taxes on income consisting of remuneration paid out of the Federal Consolidated Fund.

Also on the list are taxes on the sale and purchase of goods imported, exported, produced, manufactured, or consumed; export duties on cotton and such other export duties as may be specified by the president; excise duties; and any other taxes as may be specified by the president.

The notification also seeks to make recommendations on grants-in-aid by the federal government to the provinces.

The new NFC is also required to deliberate issues relating to the sharing of financial expense incurred or to be incurred by the federation in respect of subjects falling within the provincial domain; expenditure sharing by the federation and/or the provinces in respect of transnational matters; and financial requirements for national projects to be jointly funded by the Centre and the provinces.

In line with suggestions from the International Monetary Fund (IMF), the Centre wants to secure provincial burden-sharing in expenses for increasingly frequent natural calamities, certain horizontal health programmes and major dams, highways and motorways. It has also been calling for an end to the existing population-based incentive and its replacement with criteria based on social-sector performance and the activation of local governments.

The NFC will also be required to recommend grants-in-aid by the federal government to the provinces, set out the powers and conditions governing federal and provincial borrowing, and assess and allocate resources to meet expenditures related to the governments of Azad Jammu and Kashmir and Gilgit-Baltistan, and the newly merged districts of Khyber Pakhtunkhwa (erstwhile Fata).

Under the 7th NFC award, announced in 2009 and enforced for 15 years rather than the five-year constitutional term, the provincial share in the divisible pool was raised to 57.5pc from about 47pc. This later increased to around 59pc after special allocations to Balochistan, KP and Sindh on various grounds, reducing the federal share to 42.5pc.

In subsequent years, however, the Centre imposed a petroleum levy of about Rs1.5 trillion and secured roughly Rs1.5tr in cash balances from the provinces, effectively tilting the financial balance back in its favour.

On their part, the provinces failed to meet their 7th NFC commitment to increase their own revenue contribution by 0.5pc of GDP every year. A similar pledge by the Centre to raise its revenue by one per cent of GDP annually also remained unfulfilled.

For the current year, the federal government has already revised down its economic growth forecast by up to 0.7 percentage points to 3.5pc owing to flood-related damages.

Various quarters, including the finance ministry, the armed forces and the IMF, have been calling for a rebalancing of the transfer of a larger chunk of divisible pool resources in the Centre’s favour.

The Constitution, however, stipulates that provincial shares under each NFC award cannot be reduced. The award must be agreed upon by consensus among the five parties, i.e., the Centre and the four provinces.

Provincial governments receive their horizontal shares based on population, poverty, revenue collection and inverse population density. Under the current formula, Punjab receives 51.74pc, Sindh 24.55pc, Khyber Pakhtunkhwa 14.62pc and Balochistan 9.09pc.

Prime Minister Shehbaz Sharif is expected to engage with the political leadership of key allies on the NFC before the formal sitting, although he has no official role in the commission, the sources said.

The revision of NFC parameters was originally part of the proposed 27th Constitutional Amendment, under which the Centre sought to reduce provincial shares and take back some devolved subjects such as education and population.

However, the federal government later stepped back in a political bargain with its main coalition partner, the PPP, to prioritise amendments relating to the armed forces and the judiciary. Nevertheless, the prime minister has been hinting at continuing dialogue with the PPP on the NFC.

Published in Dawn, November 22nd, 2025

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