Pakistan has kicked off a new round of National Finance Commission (NFC) discussions, and this time, the federal government is making its expectations crystal clear: provinces must pull more weight in generating revenue. The opening session of the 11th NFC, chaired by Finance Minister Muhammad Aurangzeb, set the tone for what promises to be a tough but necessary conversation on Pakistan’s financial future.
Why the Push? The Federal Government’s View
According to the federal side, Pakistan’s current fiscal challenges aren’t just recent developments—they’re rooted in the far-reaching consequences of the 7th NFC Award, which significantly boosted the provinces’ share of resources. While provincial allocations rose, the Centre argues that its own ability to fund defense, development, and essential services was squeezed over time, contributing to the widening fiscal gap the country faces today.
Aiming for Higher Revenue Nationwide
In its opening pitch, the Centre suggested that Pakistan needs to ramp up its overall revenue by at least 5% of GDP—roughly Rs6.5 trillion each year—over the next three years. This, officials said, is crucial for managing rising debt payments and bridging persistent deficits.
To achieve this, the federal government laid out a two-pronged approach:
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FBR’s tax-to-GDP ratio should rise by 3–3.5 percentage points
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Provincial taxes should increase to 3% of GDP — a massive jump from the current 0.28%
The provinces were encouraged to push harder on property taxes, agriculture income tax, and service-sector levies — areas where collection has traditionally been weak or politically sensitive.
No Change to the Divisible Pool—for Now
While the Centre emphasized growing fiscal pressures, it avoided touching the most contentious part of the NFC formula: the provincial share in the divisible pool, which remains at 57.5%.
This move suggests the federal government wants cooperation rather than confrontation — at least at this early stage of negotiations.
Questions About Spending Alignment
One issue raised during the meeting was whether provinces are legally obliged to align their spending with national priorities. The federal government voiced concerns that without coordination, national development and security objectives become harder to manage.
This point is expected to be debated further in upcoming sessions.
Working Groups to Chart the Way Forward
To keep the process structured, the Commission agreed to form thematic working groups. These teams will examine key areas, including:
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Revenue distribution
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Provincial and federal responsibilities
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The fiscal impact of the merger of tribal districts with Khyber Pakhtunkhwa
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Broader questions of sustainability and debt management
Their findings will feed into the next NFC meeting, scheduled between January 8 and 15, 2026.
What Comes Next?
The start of the 11th NFC round marks a crucial moment for Pakistan’s economic management. With the Centre insisting on higher revenue mobilization and provinces reluctant to lose fiscal autonomy, the months ahead will likely involve intense negotiation.
But one reality is undeniable:
Pakistan needs a stronger, fairer revenue system, and both federal and provincial governments will have to do more than ever before.