ISLAMABAD: After its inaugural meeting almost two months ago amid much fanfare, the Nati­onal Finance Commission (NFC) has seemingly gone into hibernation as its second session, originally scheduled for the second week of January, is still not in sight.

Informed sources told Dawn that NFC’s eight technical working groups have also failed to get off the ground. Only two of these groups have met just once over the past two months, while the remaining six have yet to convene at all, since their official notification in the second week of December.

Following the conclusion of the first meeting on Dec 4, representatives from the Ministry of Finance and the provinces had announced a clear timeline: the second NFC meeting was scheduled to take place between Jan 8 and Jan 15, which was meant to kick off a series of regular monthly meetings until the commission finalised its recommendations for the 11th NFC award after a gap of more than 15 years.

These sources said the only group that started quickly after its notification was the one focused on the merger of ex-federally administered tribal areas (Fata) into Khyber Pakhtunkhwa and how that merger affects the province’s share in the NFC award.

Led by KP’s Finance Minister Muzammil Aslam, the group, acting on a demand from the Punjab government, asked the federal finance secretary to provide working details showing how the ex-Fata share would cut into the share of other provinces. More than seven weeks later, the technical group is still waiting for those details before it can call its second session.

Another group — on divisible pool taxes — led by Finance Minister Muhammad Aurangzeb, met once in the final days of January for initial discussions. That group is tasked with formulating recommendations on whether to include any new tax in the divisible pool of resources or exclude any existing one from the pool. The centre has been looking at the legal and constitutional reasoning for removing customs duty from the list of taxes that are shared with the provinces on the argument that international trade is a purely federal subject.

None of the six other groups have held any interaction so far, reflecting little enthusiasm for moving the consultative process forward to update the distribution of common resources among five key stakeholders — the federation and its four federating units.

An official at the Ministry of Finance said the hiatus by the federal government was driven by the back-and-forth foreign visits of Aurangzeb and Finance Secretary Imdadullah Bosal. But the official added that questions about the lethargy of other working groups — most of them led by provincial finance ministers — should be referred to where it belonged.

However, a provincial chief minister said that at least his group’s meetings, as well as the main NFC meeting, had been hampered by the unavailability of representatives from the Ministry of Finance.

The six groups pertain to vertical distribution of divisible resources between the centre and provinces and composition and utilisation of national debt, both led by the Balochistan finance minister; recommending how to improve the tax-to-GDP ratio, led by the KP finance minister; straight transfers to provinces, led by Sindh; and recommendations for criteria regarding horizontal distribution among the provinces, as well as how to share expenses incurred by the centre in areas under provincial domain — both led by the Punjab finance minister.

At the Dec 4 meeting, Sindh opposed any discussion on expenditures after the issue was raised by the federal finance secretary. Sindh argued that the NFC’s constitutional mandate was limited to the distribution of revenues and that it had no jurisdiction to dictate how provinces or other stakeholders spend the funds once allocated.

The federal government has reportedly sought legal opinion from Pakistan’s attorney general suggesting expenditures could also be deliberated within the NFC forum.

At the inaugural meeting of the 11th NFC, the centre indicated it wanted to mobilise additional consolidated revenues of more than 5 per cent of gross domestic product over the next three years — roughly 6.5 trillion Pakistani rupees per year at current rates — and urged provinces to increase their own revenue contribution to 3pc of GDP.

The provinces were asked to raise those revenues through taxes on property, agricultural income and sales tax on services from less than 1pc of GDP at present, according to the account of the meeting.

The centre framed the higher revenue targets as necessary to stabilise a rising fiscal deficit that has widened by around 3pc since 2010 after a “fiscal imbalance” created under the 7th NFC award. The deficit has climbed from close to 4pc to over 6.6pc, contributing to a massive deterioration in debt-to-GDP ratios.

It was announced that the second NFC meeting would be held between Jan 8 and 15, depending on whether working-group reports were ready before Jan 8. Those groups were expected to deliberate on horizontal and vertical distribution of resources, how provinces should advance taxation policies based on the latest experiences, and the impact of debt servicing, poverty and other factors.

A special working group was also agreed upon at the request of KP to examine the fiscal and social impact of the merger of tribal districts and how to proceed with adequate resources.

The 11th NFC was constituted on Aug 22 to deliver a new award governing how federal divisible resources are shared among the federation and the provinces. Its first meeting was originally called for Aug 27 but was postponed repeatedly before finally convening on Dec 4.

The commission operates under terms of reference set out under Clause 2 of Article 160 of Pakistan’s Constitution. Those terms require the 11th NFC to distribute between the federation and the provinces the net proceeds of five major tax categories.

They include taxes on income, including capital value tax and corporation tax, but exclude taxes on income consisting of remuneration paid out of the Federal Consolidated Fund. Also included 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 as may be specified by the president. The list also includes excise duties and any other taxes as may be specified by the president.

Under IMF suggestions, the centre wants provinces to share more expenses for natural calamities — which have become more frequent — as well as some horizontal health programmes and major infrastructure such as dams, highways and motorways, etc.

The centre has also been calling for an end to population-based incentives and for their replacement with social sector performance measures and activation of local governments. Punjab and KP have also informally supported delinking population from the NFC formula.

The NFC is also required to make allocation of resources to meet expenditures related to the Azad Government of the States of Jammu and Kashmir, the Government of Gilgit-Baltistan and the newly merged districts of Khyber Pakhtunkhwa (erstwhile FATA).

The last major award, the 7th NFC award delivered in 2009, remained effective for 15 years instead of the Constitution’s five-year term. Under that award, the provincial share increased to 57.5pc from about 47pc, and later rose to about 59pc after special allocations to Balochistan, Khyber Pakhtunkhwa and Sindh on different grounds. That reduced the federal share to 42.5pc.

In subsequent years, however, the centre imposed a petroleum levy — estimated at about 1.5 trillion rupees — and secured about 1.5 trillion rupees in cash balances from the provinces, effectively reversing the financial balance in its favour.

Provinces, meanwhile, did not deliver on commitments made under the 7th NFC to increase their revenue contribution by 0.5pc of GDP every year, the sources said. A similar commitment by the centre — a 1pc of GDP increase in revenue every year — also remained unfulfilled.

Various quarters, including the finance ministry, the armed forces and the International Monetary Fund (IMF) have been calling for rebalancing the transfer of a larger chunk of divisible pool resources to the centre’s favour. The Constitution promises that provincial shares in each NFC award cannot be reduced. The NFC award has to be achieved with the consensus of five parties — the Centre and the four provinces.

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

Published in Dawn, February 2nd, 2026

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