Analyzing 7th NFC Award and its Implications

Abstract

[Being a Federation, the revenues in Pakistan are shared by the Federal and Provincial governments. A major part of these revenues are collected by the Federal government and thereafter distributed among the Centre and the Provinces on the basis of agreed criteria formulated by the National Finance Commissions set up from time to time. The Constitution of the Islamic Republic of Pakistan 1973 (Article 160) envisages that the President shall constitute, at intervals not exceeding five years, a National Finance Commission (NFC) comprising the Federal and Provincial Ministers of Finance and other nominated members to make recommendations on distribution of revenues between Federal and Provincial governments, Federal grant-in-aid to provinces and other matters referred to it. The Article also specifies the taxes that are assigned to the ‘divisible pool’. The division of revenues between the Federal and Provincial governments has always been a sensitive issue – the main areas of contention being (1) taxes to be included in the divisible pool, (ii) Federal and Provincial share in the pool, and (iii) basis of distribution of the provinces’ share among the provinces. These matters often remained unresolved by the NFCs in the past, compelling the government to adopt ad hoc measures. The Seventh Commission (2009) turns out to be one of the few that have made unanimous recommendations with far reaching financial implications for the Federal and Provincial governments. This paper discusses the implications of the NFC Awards in historical and comparative perspectives. – Author]