The federal government has proposed mobilising additional consolidated revenues equivalent to more than five per cent of GDP over the next three years, roughly Rs6.5 trillion annually, during the inaugural session of the 11th National Finance Commission (NFC). The meeting, which aimed to address fiscal challenges resulting from the post-2010 expenditure framework, also sought legal guidance on whether provinces are obligated to follow federal expenditure priorities.
The federal administration urged the Federal Board of Revenue (FBR) to increase the tax-to-GDP ratio by 3 to 3.5 percentage points from the current 10 per cent within three years. In parallel, provinces were requested to enhance their revenue share to 3 per cent of GDP through property taxes, agriculture income, and sales tax on services, compared to the existing 0.28 per cent. Officials highlighted that these measures are critical to stabilising the rising fiscal deficit, which has increased from nearly 4 per cent to over 6.6 per cent, and to mitigate the deterioration of the debt-to-GDP ratio caused by fiscal imbalances since the 7th NFC award.
Chaired by Federal Minister for Finance and Revenue Muhammad Aurangzeb, the meeting included chief ministers of Sindh and Khyber Pakhtunkhwa, finance ministers of Punjab and Balochistan, provincial advisers, and finance secretaries. Discussions clarified that there was no demand to reduce the provinces’ 57.5 per cent share of the divisible pool, nor debate about assigning new responsibilities, which fall under the Council of Common Interests (CCI) and the National Economic Council (NEC).
The participants agreed to establish seven thematic working groups to deliberate on resource distribution, taxation policies, debt servicing impacts, and poverty. A special group was created to assess the fiscal and social implications of the merger of KP’s tribal districts, responding to KP’s request. These groups will provide reports ahead of the second NFC meeting scheduled between January 8 and 15.
Sindh Chief Minister Murad Ali Shah described the session as held in a positive atmosphere, with all stakeholders explaining their fiscal positions. He noted that provinces maintain autonomy over their expenditures under Article 160 of the Constitution and are not bound by federal directives. The federal finance secretary also suggested obtaining a legal opinion from the Attorney General of Pakistan to clarify constitutional provisions regarding national alignment of spending priorities.
The Centre highlighted challenges following the 7th NFC award, citing constraints on defence and development expenditure due to rising debt servicing costs. Finance Minister Aurangzeb emphasised the collaborative spirit of the NFC and affirmed the federal government’s commitment to transparent dialogue and collective decision-making.
KP Chief Minister Sohail Afridi thanked the federal government for addressing the merged districts’ concerns and reiterated that a strong federation relies on strong provinces. Finance ministers of Punjab and Balochistan underscored the importance of consensus-building and continued cooperation to strengthen Pakistan’s fiscal stability.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.