Analysis of The Recent NFC

AWARD
SEQUENCE OF PRESENTATION
• INTRODUCTION
• CONSTITUTIONAL PROVISION AND COMMISSION COMPOSITION
• CHRONOLOGY OF NFC AWARDS
• SALIENT FEATURES OF 7TH NFC AWARD
• IMPEDIMENTS
• CONCLUSION
• RECOMMENDATIONS

7TH NFC AWARDS 31/01/2014 2

 INTRODUCTION 1/2
• Pakistan a federation with centralized Government structure
• Resource Distribution
• Systematic (4 Stages)1
• Random (Grants, Discretionary funds etc)

• National Finance Commission responsible for finance award for

transferring revenue to the federating units

• Economic Programs enacted since 1951

1. National Finance Commission Awards in Pakistan: A Historical Perspective by Iftikhar Ahmad

7TH NFC AWARDS 31/01/2014 3
 INTRODUCTION 2/2
• Constitutional provision for NFC Awards: Article 160
• Rationale behind NFC Award
• Step forward for decentralization and Fiscal Federalism
• Taxes collected in each province redistributed according to the
NFC formula
• 7 NFC awards announced since 1973 1

1. http://en.wikipedia.org/wiki/National_Finance_Commission_Award
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 CHARTER OF NFC
• Distribution of the net proceeds of the taxes between the
Federation and the Provinces
• Making of grants-in-aid by the Federal Government to the
Provincial Governments
• Exercising borrowing powers by the Federal Government and
the Provincial Governments
• Any other matter relating to finance referred to the Commission
by the President

1. Constitution of Pakistan 1973

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COMMISSION COMPOSITION

Federal Finance
Minister (Chairman)

Provincial Finance Suitable member

Ministers appointed by President

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 CHRONOLOGY OF NFC AWARDS 1/2

Projected F
Awards Presented by Status
iscal year

Zulfikar Ali
First NFC Award 1974 Conclusive 1974–79
Bhutto
Second NFC Award 1979 Zia-ul-Haq Inconclusive 1979–84
Third NFC Award 1985 Zia-ul-Haq Inconclusive 1985–90
Fourth NFC Award 1991 Nawaz Sharif Conclusive 1991–96

1. http://en.wikipedia.org/wiki/National_Finance_Commission_Award
7TH NFC AWARDS 31/01/2014 7
 CHRONOLOGY OF NFC AWARDS 2/2

Projected F
Awards Presented by Status
iscal year

Fifth NFC Award 1995 Benazir Bhutto Inconclusive 1995–2000

NFC Award 1997 Nawaz Sharif Conclusive 1997–2002

Pervez
Sixth NFC Award 2002 Inconclusive 2002–07
Musharraf
Yousaf Raza
Seventh NFC Award 2010 Conclusive 2010–15
Gillani
1. http://en.wikipedia.org/wiki/National_Finance_Commission_Award
7TH NFC AWARDS 31/01/2014 8
 PROVINCIAL DISSENT
• Punjab
• Sole Population based criterion
• Royalty on wheat and cotton

• Sindh
• Consideration for Sales Tax and Services Collection

• Baluchistan
• Geographical Size
• Royalty on Natural Resources
• Backwardness

• KPK
• War on Terror Attrition
• Backwardness
• Royalty on Hydro Electric Power Projects

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa
7TH NFC AWARDS 31/01/2014 9
 SALIENCE OF 7TH NFC
• Unanimous consensus after a lapse of 13 years

• Multi Indicator based distribution criterion

• Collection charges cut from 5% to mere 1%

• Compensation for KPK and Baluchistan

• Sales tax on services as provincial subject

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa

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 DISTRIBUTION CRITERION 1/2

INDICATORS % WEIGHT
Population 82.00
Poverty/backwardness 10.30
Revenue Collection/ generation 5.00
Inverse population density 2.70
TOTAL 100

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa

7TH NFC AWARDS 31/01/2014 11

DISTRIBUTION CRITERION 2/2
Population Poverty/Backwardness
Revenue Collection Inverse population density
3%

5%
10%

82%

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 PROVINCIAL SHARE

FINANCIAL YEAR %AGE SHARE

2006-07 41.50%
2007-08 42.50%
2008-09 43.75%
2009-10 45.00%
2010-11 56.00%
2011-12 57.50%
onwards

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa

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 COMPARATIVE ANALYSIS 1/2

SHARE 6TH NFC AWARD 7TH NFC AWARD EFFECT

FEDERAL SHARE 52.7% 44% REDUCED

PROVINCIAL 47.3% 56% INCREASED

SHARE

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa

7TH NFC AWARDS 31/01/2014 14

 COMPARATIVE ANALYSIS 2/2

PROVINCE 6TH NFC 7TH NFC AWARD NET EFFECT

AWARD

PUNJAB 53.10% 51.70% 1.26%

SINDH 24.94% 24.55% 0.39%

KPK 14.88% 14.62% 0.26%

BALUCHISTAN 7.17% 9.09% 1.29%

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa

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NFC AWARD AND NATIONAL INTEGRITY

Financial
Autonomy to
provinces

Bridging of
trust deficit Socioeconomic
NATIONAL
between development of
INTEGRATION
centre and provinces
provinces

Inclusion of
multiple
criteria

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 IMPEDIMENTS
• Lack of political will
• Weak financial management and lack of accountability
• Financial liabilities for Federal Government
• Instable service base under GST1
• Disparities in distribution to lower tiers

1. Fiscal Federalism in Pakistan : The 7th NFC Award and Its Implications by Usman Mustafa

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CONCLUSION
NFC award is a major accomplishment and a product of the
democratic process. Formulation of multiple criteria is a
commendable step forward which will foster provincial
fraternity as well as provincial fiscal autonomy. This will bolster
provincial roles in alleviating poverty, undertaking
development projects and effectively running institutional
machinery. However, Federal Government has taken a
substantial cut in its revenue and its resources will not be
sufficient

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RECOMMENDATIONS
• Good Governance
• Improvement in Financial Management
• Increasing accountability
• Strengthening Council of Common Interest
• Ownership of natural resources, fiscal autonomy, and
taxation/revenue collection be further negotiated

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Thank You
Q&A
7TH NFC AWARDS 4/24/2018 22
7TH NFC AWARDS 4/24/2018 23
ARTICLE 160(1)
Within six months of the commencing day and thereafter at
intervals not exceeding five (consecutive) years, the President
shall constitute a National Finance Commission consisting of the
Minister of Finance of the Federal Government, the Ministers of
Finance of the Provincial Governments, and such other persons
as may be appointed by the President after consultation with the
Governors of the Provinces

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