The National Finance Commission (NFC) Award refers to the inter-governmental distribution of federal tax revenue among Pakistan’s four provinces. In essence, it is the formula through which governmental revenue is shared between the federal government and the provinces. Introduced as a corrective mechanism, the NFC Awards was designed to address fiscal imbalances and to support provincial governments in meeting their expenditure and liabilities.
The constitutional basis of this system lies in Article 160 of Pakistan’s Constitution, which makes it mandatory to announce an NFC Award every five years. Each award provides an opportunity to review and revise the formula of distribution. Given Pakistan’s federal structure-comprising the federal government, its four provinces, and previously the Federally Administered Tribal Areas (FATA), now merged with Khyber Pakhtunkhwa-the NFC remains a crucial instrument of financial federalism.
Pakistan’s first inter-provincial revenue distribution arrangement, the Raisman Award of 1951, set the precedent for subsequent NFC Awards. Since then, several awards have been announced, though not always on schedule. A milestone came in 2010 with the 7th NFC Award, which increased the provincial share in the divisible pool of federal taxes to 57.5%, reducing the federal government’s share to 42.5%.
Before 2010, the sole criterion for distribution was population, which allowed Punjab, being the most populous province, to receive the largest share of resources. This left smaller provinces underfunded, reinforcing regional disparities. With the 7th Award, however, new indicators such as poverty levels, revenue generation, and backwardness were introduced alongside population to make the formula more equitable.
The 8th Award (2015) remained inconclusive, while the 9th Award (2020) coincided with the implementation of the 18th Constitutional Amendment, which devolved greater responsibilities to the provinces. However, consensus could not be achieved due to the federal government’s financial constraints and competing provincial demands. As a result, the 7th Award has effectively continued to this day.
Now, with the 10th NFC Award scheduled for 2025, expectations are high for a revised formula that balances provincial demands with national realities.
Several pressing issues complicate the formulation of the NFC Award:
> Population Growth: Pakistan’s rapidly increasing population creates a disproportionate demand for resources.
> Poverty and Backwardness: The socio-economic disparity among provinces necessitates special consideration for underdeveloped areas such as Balochistan and parts of Khyber Pakhtunkhwa.
> Revenue Generation: Sindh, which contributes significantly to national revenue through its ports and industries, often demands greater weightage based on fiscal contribution.
> Geographical Spread: Balochistan, with its vast territory but sparse population, argues for distribution based on land area and backwardness rather than population alone.
> Punjab’s Stance: As the most populous province, Punjab naturally prefers population to remain the primary determinant.
Each demand has merit, which makes consensus difficult yet essential.
The dilemma lies in the fact that every province’s expectations are justified in their own right. Punjab’s emphasis on population, Sindh’s argument for revenue generation, and Balochistan and Khyber Pakhtunkhwa’s focus on area and backwardness-all highlight valid dimensions of fiscal need.
The most pragmatic approach would be a composite formula that assigns weightage to multiple indicators-population, poverty, backwardness, revenue generation, and land area. Such an arrangement would ensure fairness, encourage revenue collection, and promote balanced development.
Additionally, innovative measures could complement the NFC Award. For example, the federal government may consider special development grants or soft loans for backward provinces, enabling them to invest in infrastructure, education, and healthcare. Equally important is fostering a spirit of collective sacrifice, where relatively stronger provinces demonstrate generosity for the greater national interest.
The government has announced the constitution of what it calls the 11th NFC Commission. While some confusion exists over the numbering-given that the upcoming award is technically the 10th-the more critical point is to achieve consensus on a formula that addresses current economic realities.
If industrial and agricultural development could be expanded across the entirety of Pakistan, the resultant increase in exports and revenue would ease the burden of allocation disputes. Ultimately, a fair and timely NFC Award is not only a constitutional obligation but also a national necessity for reducing poverty, strengthening the federation, and promoting equitable growth.
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