The National Finance Commission (NFC) Award is central to Pakistan’s current federal fiscal system. It determines how revenue collected from federal taxes such as income tax, sales tax, and customs duties is shared between the federal government and the provinces.
With new proposals under the 27th Constitutional Amendment to change this formula, understanding the NFC Award is more important than ever.
What is the NFC Award?
The NFC Award is a financial agreement enshrined in the constitution of Pakistan to ensure fair and equitable distribution of national tax revenues among Pakistan’s provinces.
Every few years, the federal and provincial finance ministers, along with experts appointed by the President, form a commission to review and recommend how this national revenue “cake” should be divided.
NFC consultations are both a technical and political process that maintains the fiscal balance of the ethnically diverse federation.
Constitutional basis: Article 160 of the 1973 Constitution
Under Article 160(1) of the Constitution, the President must establish a National Finance Commission every five years.
The NFC recommends how federal tax revenues are distributed (Clause 2a), how grants in aid are made (2b), and how borrowing powers are exercised (2c).
Clause (3) lists the taxes to be shared, such as income tax, sales tax, export duties, and excise duties.
Importantly, Clause (3A) guarantees that provincial shares cannot be reduced below the previous award’s level, while (3B) requires biannual monitoring of implementation.
Historical background of NFC Awards in Pakistan
Fiscal sharing among the federating units in the subcontinent dates back to the Government of India Act 1935.
After Pakistan got its independence in 1947 first revenue sharing formula, the Raisman Award of 1952, laid the foundation for financial federalism in Pakistan.
Since the 1973 Constitution, seven NFC Awards have been announced, with the 7th Award (2009–10) being the most transformative.
Despite constitutional guarantees of establishment of National Finance Commission every five years, only 7 has been awarded so far.
The 7th NFC Award: Fiscal turning point for Pakistan
Signed in 2009 and implemented in July 2010, the 7th NFC Award introduced a multi-factor formula instead of relying solely on population. The distribution is based on:
• Population: 82%
• Poverty and backwardness: 10.3%
• Revenue generation: 5%
• Inverse population density: 2.7%
This formula gave provinces greater autonomy, with 57.5% of all federal taxes allocated to them, while the federal government retained 42.5% with the burden of running federal government and loss making enterprises.
For 2024–25, this means provinces received 7.4 trillion rupees out of a total collection of 12.97 trillion rupees.
Current revenue distribution formula under previous NFC Award for the fiscal year (FY 2024–25)
The NFC Award ensures provinces can fund education, health, infrastructure, and local development without relying entirely on the Islamabad.
| Province | Share (%) | Allocation (Rs Trillions) |
|---|---|---|
| Punjab | 51.74% | 3.6 |
| Sindh | 24.55% | 1.88 |
| Khyber Pakhtunkhwa | 14.62% | 1.22 (includes 1% for war on terror) |
| Balochistan | 9.09% | 0.66 |
Challenges and the need for reform
There are several key disagreements over the distribution formula among Pakistan’s federating units which includes overemphasizes on population and neglects performance, efficiency, and revenue generation capacity.
Proposals under the 27th constitutional amendment
As part of the 27th Amendment, policymakers are reportedly considering adjustments to the current NFC formula.
According to the details citied by government officials, these may include new metrics such as fiscal discipline, development outcomes, and provincial revenue efforts.
The goal is to make the distribution fairer and more data driven.
However, provinces worry about losing the financial autonomy if their shares are tied to performance rather than population need.
