ISLAMABAD: Pakistan’s President Asif Ali Zardari on Friday formally constituted the country’s 11th National Finance Commission (NFC) to determine a new financial award for the equitable distribution of federal divisible resources between the central government and the provinces.
Finance Minister Muhammad Aurangzeb will chair the commission, which includes provincial finance ministers and nominated experts.
The commission will be responsible for making recommendations to the President on the distribution of the net proceeds of taxes between the federation and the provinces, as outlined in clause (3) of Article 160 of the Constitution.
These taxes include income tax, including corporation tax, but excluding taxes on income comprising remuneration paid out of the Federal Consolidated Fund; taxes on the sale and purchase of goods that are imported, exported, produced, manufactured or consumed; export duties on cotton and any other export duties specified by the President; excise duties as designated by the President; and any other taxes as may be specified by the President.
The President of the Islamic Republic of Pakistan has constituted the 11th National Finance Commission (NFC) under Article 160 of the Constitution.
🔹 Chaired by the Federal Finance Minister
🔹 Includes provincial finance ministers & nominated experts
🔹 To recommend… pic.twitter.com/825PqKDpg7— Khurram Schehzad (@kschehzad) August 22, 2025
The commission will also recommend the president regarding the grants-in-aid by the federal government to the provincial governments; the exercise, by the federal government and the provincial governments, of the borrowing powers conferred by the Constitution; issues relating to the sharing of financial expense incurred or to be incurred by the federation in respect of subjects and matters falling within the domain of the provinces; issues relating to the sharing of financial expense incurred or to be incurred by the federation or the provinces.
The 10th National Finance Commission (NFC) expired on 21 July, while the 7th NFC Award—originally intended for a five-year term—has remained in force for nearly 15 years.
Its continued implementation is the result of an ongoing deadlock between the Centre and the provinces over a new revenue-sharing formula, prompting the president to extend the award annually.
The 18th Amendment to the Constitution offers protection to the provinces’ financial share, mandating that no future award may allocate a province less than what it received under the previous arrangement.
According to the notification from the Finance Division, Finance Minister Muhammad Aurangzeb will serve as the chair of the commission, with all four provincial finance ministers and nominated experts as its members.
In a joint working paper, economists Sajid Amin and Vaqar Ahmad proposed that future National Finance Commission (NFC) awards should gradually shift from a purely needs-based model of resource distribution to one that prioritises efficiency.
They recommended reducing the current population-based weightage—from 82% to 50%—by cutting it by at least 10% over the next two NFC awards, followed by a further 15% reduction in the subsequent two awards.
The federal government is already exploring similar approaches, the Express Tribune reported. Planning Minister Ahsan Iqbal has suggested freezing the population figure at 241.5 million for the purpose of resource allocation, instead of adjusting for updated census data, according to Express Tribune.
An internal meeting held at the Ministry of Finance earlier this week revealed that one of the key options under consideration is to link 10% to 15% of provincial shares in federal taxes with measurable improvements in key development indicators such as education, healthcare, population management, and climate resilience.
Additionally, the Centre is aiming to reward provinces for their revenue-generating efforts by tying a portion of transfers to provincial tax performance, according to official sources.
The finance ministry is also preparing a detailed policy paper to outline the federal government’s fiscal outlook over the next five years, including projections on public debt and budget deficits.
The central argument of the paper will be that the current 57.5% share of the divisible pool allocated to provinces must be revised downward, according to Express Tribune.
The document will also highlight how the federal government continues to shoulder expenditures that fall under provincial responsibilities, and that these spending obligations must be curtailed.
