Murad calls for full financial autonomy for provinces

Sindh Chief Minister Syed Murad Ali Shah on Monday agreed that the formula for the National Finance Commission (NFC) Award should take into account factors like income disparity, demographic performance, human development, tax efforts and forest cover.

Shah was talking to a delegation of the United Nations Population Fund (UNFPA) that visited him at the CM House. It was led by UNFPA Pakistan Representative Dr Luay Shabaneh. Taking a step toward ensuring the equitable distribution of financial resources, and promoting sustainable economic growth, the CM and the UNFPA team analysed the NFC Award.

Shah said that for the first time multiple criteria were adopted for distributing resources under the 7th NFC Award. He stressed that since 2008 the Pakistan Peoples Party has advocated for provinces to have full authority over sales tax collection to improve revenue generation.

He explained that provinces are closer to consumers, making them more efficient in tax collection. However, he pointed out that 90 per cent of the taxes in Pakistan are collected at federal level, while provinces are only responsible for collecting 10 per cent of the taxes themselves.

“This dependence forces provinces to rely on federal allocations,” he said, adding that granting full financial autonomy to provinces would not only enhance tax collection but also ensure a more effective distribution of resources. NUST Institute of Policy Studies Director General Dr Ashfaque Khan presented a comprehensive overview that highlighted the historical evolution of the NFC, existing fiscal imbalances, and the need for a reformed approach to revenue sharing.

The NFC is a constitutional body responsible for distributing tax revenue between federal and provincial governments. Under the constitution the NFC is formed every five years to devise an appropriate mechanism for financial allocation.

Pakistan’s revenue-sharing framework traces back to the Niemeyer Award (1935), which was modified after independence in 1947. The first formal NFC Award (1951), introduced by then prime minister Liaquat Ali Khan, was known as the Raisman Award.

Several subsequent awards were introduced, but early awards (1961, 1964 and 1970) were inconclusive. A significant shift occurred after 1971, when population became the primary factor for resource allocation, a trend that persisted until the 7th NFC Award, which introduced multiple criteria.

It was pointed out that unlike many countries where population plays a minimal role in financial distribution, Pakistan has historically based resource allocation primarily on population size.

The 7th NFC Award (2009) was the first to adopt a multi-factor formula, reducing the population’s weight from 100 per cent to 82 per cent, and incorporating factors like poverty levels, revenue generation and inverse population density. Dr Khan’s presentation included a detailed census analysis, illustrating significant population growth trends and their implications for financial planning. Pakistan’s population increased from 33.7 million in 1951 to 241.5 million in 2023, highlighting the urgency for a balanced, growth-oriented NFC formula.