Centre Notifies 8 NFC Committees Amid Provinces’ Concerns Over Revenue Sharing
By Business Desk | Published December 16, 2025
The federal government of Pakistan has officially notified eight sub-committees under the 11th National Finance Commission (NFC), a major development that comes amid growing concerns from provinces over revenue sharing, fiscal imbalance, and reduced provincial transfers. This step follows legal backing from the Attorney General and renewed debate over whether provinces are receiving their constitutionally guaranteed share from the federal divisible pool.
The move has reignited discussions around Article 160 of the Constitution, provincial autonomy, petroleum levy deductions, national debt burden, and the long-delayed 11th NFC Award, which is expected to redefine fiscal relations between the federation and the provinces after a gap of nearly 15 years.
What Is the National Finance Commission (NFC)?
The National Finance Commission (NFC) is a constitutional body formed under Article 160 of Pakistan’s Constitution. Its main role is to recommend how financial resources collected by the federal government should be distributed between the federation and provinces, and among the provinces themselves.
Key responsibilities of the NFC include:
- Determining the divisible pool of taxes
- Recommending the vertical distribution (federal vs provinces)
- Proposing horizontal distribution (among provinces)
- Addressing fiscal coordination, debt, and expenditure sharing
The 7th NFC Award, agreed upon in 2010, significantly increased provincial shares to 57.5%, strengthening provincial autonomy. However, since then, no new NFC award has been finalized, leading to mounting disputes.
Background: Why Provinces Are Raising Concerns
At a recent seminar organized by the Social Policy and Development Centre (SPDC), renowned economist Dr. Hafiz Pasha highlighted a critical issue:
Despite the constitutional requirement that 57.5% of the divisible pool must go to provinces, they received only 45.8% in the last fiscal year.
Why Did Provinces Receive Less?
According to fiscal experts, the shortfall occurred due to:
- Heavy petroleum levy collections kept outside the divisible pool
- Cash surplus deductions
- Rising federal debt servicing
- Increased federal expenditures on provincial subjects
These deductions have reduced the actual funds transferred to provinces, triggering objections — particularly from Sindh — over what they describe as a violation of constitutional guarantees.
Centre’s Response: Formation of 8 NFC Sub-Committees
To address these long-standing disputes and prepare groundwork for the 11th NFC Award, the Ministry of Finance has notified eight specialized sub-committees. Each group will focus on a key fiscal issue and submit recommendations.
These committees include:
- Federal Finance Minister
- Provincial Finance Ministers
- Finance Secretaries
- Senior officials from Finance Division
- Co-opted experts (where required)
Detailed Breakdown of the 8 NFC Sub-Committees
1. Divisible Pool Composition Committee
This committee will decide:
- Which taxes should be included in the divisible pool
- Whether petroleum levy and other charges should be shared
- How federal revenue collection can be made more transparent
This issue is central because provinces argue that major revenue sources are being kept outside the pool.
2. Vertical Distribution Committee (Federation vs Provinces)
Formed under Article 160, this group will propose:
- Revised sharing ratios between federation and provinces
- Mechanisms to protect provincial fiscal autonomy
- Adjustments based on new economic realities
The provinces strongly demand restoration of their full 57.5% share.
3. Horizontal Distribution Committee (Among Provinces)
This committee will review:
- Population, poverty, backwardness, revenue generation
- Area and inverse population density indicators
- Whether current indicators still reflect ground realities
Smaller provinces want greater weight for poverty and backwardness.
4. Expense Sharing Committee (Highly Controversial)
This committee will examine:
- Federal spending on subjects constitutionally assigned to provinces
- Cost-sharing mechanisms
- Transparency in expenditure claims
This group was formed after Sindh’s objections, with legal backing from the Attorney General, who ruled that such discussions fall within NFC’s scope.
5. Tax-to-GDP Ratio Improvement Committee
Pakistan’s tax-to-GDP ratio remains among the lowest in the region. This committee will propose:
- Broadening the tax base
- Reducing reliance on indirect taxes
- Improving provincial tax collection capacity
- Strengthening FBR-provincial coordination
6. Straight Transfers Committee
This group will focus on:
- Transfers like natural gas royalty, oil profits, and hydel profits
- Delays and disputes in payments
- Clear formulas for calculation and release
Khyber Pakhtunkhwa and Sindh have repeatedly raised concerns over delayed payments.
7. FATA Merger and Newly Merged Districts Committee
Following the merger of former FATA into Khyber Pakhtunkhwa, this committee will:
- Decide the merged districts’ share in the divisible pool
- Propose development financing mechanisms
- Ensure long-term fiscal sustainability
8. National Debt Utilization Committee
One of the most critical groups, this committee will review:
- Composition of Pakistan’s national debt
- Debt servicing burden on federal finances
- Impact of debt on provincial transfers
- Long-term debt sustainability framework
Provinces argue that federal debt servicing should not reduce their constitutional share.
Legal Opinion and Sindh’s Objections
Sindh had objected to forming a committee on expense sharing, arguing that it falls outside NFC’s mandate. However, the Attorney General of Pakistan ruled in favor of the federal government, stating that:
- NFC can examine expenditure issues affecting fiscal balance
- Working groups can be formed to facilitate recommendations
- No constitutional violation exists in discussing expense sharing
This legal backing paved the way for the notification of all eight committees.
Why the 11th NFC Award Is Crucial
The 11th NFC Award is expected to:
- End years of fiscal uncertainty
- Restore trust between federation and provinces
- Address post-18th Amendment realities
- Balance development needs with fiscal responsibility
- Reform revenue sharing for a changing economy
Experts believe failure to reach consensus could deepen inter-provincial tensions and weaken federal unity.
Economic and Political Implications
The outcome of these committees will directly affect:
- Provincial development budgets
- Health, education, and infrastructure spending
- Centre-province relations
- Pakistan’s IMF commitments
- Long-term fiscal sustainability
With rising inflation, debt pressure, and IMF reforms, the NFC process has become more critical than ever.
Conclusion
The notification of eight NFC sub-committees marks a significant step toward reviving Pakistan’s stalled fiscal consensus. While serious challenges remain, especially around revenue sharing, petroleum levy exclusions, and debt servicing, the structured committee approach offers hope for progress.
The success of the 11th NFC Award will depend on political will, constitutional commitment, and a shared understanding that strong provinces mean a stronger federation.
Frequently Asked Questions (FAQs)
1. What is the purpose of forming 8 NFC committees?
The committees are formed to prepare detailed recommendations on revenue sharing, debt, taxes, and expenditure for the upcoming 11th NFC Award.
2. Why are provinces unhappy with current revenue sharing?
Because provinces received only 45.8% instead of the constitutionally mandated 57.5% due to deductions like petroleum levy and cash surpluses.
3. What is the role of the Attorney General in this matter?
The Attorney General provided legal opinion supporting the federal government’s authority to form committees, including one on expense sharing.
4. Why is the 11th NFC Award delayed?
Political disagreements, economic instability, and lack of consensus among provinces have delayed the award for over 15 years.
5. How will the new NFC Award affect common citizens?
It will influence provincial spending on health, education, infrastructure, social welfare, and development projects.
