Disagreements over NFC allocations, taxation powers and development funding intensify as Pakistan prepares its federal budget.
ISLAMABAD: A fresh dispute over resource distribution has emerged between Pakistan’s federal government and the provinces after the Centre reportedly sought adjustments to the National Finance Commission (NFC) Award that could reduce provincial revenues by nearly Rs1.7 trillion.
The controversy surfaced during a press conference in Islamabad on Wednesday, where Khyber-Pakhtunkhwa Finance Adviser Muzammil Aslam claimed that the federal government was unhappy with its current share of the divisible tax pool and had proposed revisiting key provisions of the NFC framework.
According to Aslam, the Centre suggested removing customs duties and federal excise duties from the pool of taxes shared with provinces. Such a move would significantly reduce provincial allocations and increase the federal government’s fiscal space. However, discussions reportedly ended without any agreement among the stakeholders.
Under the existing NFC arrangement, provinces collectively receive 57.5 percent of the divisible tax pool, while the federal government retains 42.5 percent. Aslam alleged that the proposed changes would require provinces to absorb a reduction of approximately Rs1.7 trillion, with Punjab and Sindh likely to shoulder the largest financial burden.
The dispute comes at a critical time as the federal government continues to grapple with fiscal pressures ahead of the upcoming budget. Efforts to create additional fiscal space, manage expenditure commitments and meet revenue targets have complicated budget preparations, contributing to delays in key economic decisions and consultations.
Aslam further claimed that Islamabad had urged provinces to generate an additional Rs430 billion in tax revenues, arguing that the federal government had limited room to impose new taxes. He said Khyber-Pakhtunkhwa was initially asked to raise Rs35 billion through new taxation measures, but the target was later increased to Rs65 billion through official correspondence. The provincial government, he added, rejected the proposal.
Another point of contention involves agricultural support measures. According to the finance adviser, the federal government requested provincial contributions toward fertilizer subsidies, asking Khyber-Pakhtunkhwa to contribute Rs2 billion while Punjab was expected to provide approximately Rs55 billion.
The provincial leadership also criticized federal development spending patterns. Aslam argued that despite a federal development budget exceeding Rs1.1 trillion, only Rs2.2 billion had been allocated for projects in Khyber-Pakhtunkhwa. In comparison, Balochistan and Sindh were reportedly allocated Rs225 billion and Rs150 billion respectively, raising concerns about equitable distribution of development funds.
Addressing Pakistan’s engagement with the International Monetary Fund, Aslam said trust issues between the federal government and the IMF had complicated approval of policy proposals. He maintained that Khyber-Pakhtunkhwa and Balochistan deserved special consideration because of their economic challenges and security-related pressures.
Meanwhile, Khyber-Pakhtunkhwa Information Minister Shafiullah Jan said the provincial government was still awaiting guidance on its budget strategy. He noted that Chief Minister Ali Amin Gandapur had sought permission to meet Imran Khan to discuss budget-related matters. If the meeting does not take place, he said, the party’s senior leadership will decide the province’s fiscal roadmap.
The growing disagreement over NFC allocations, taxation authority and development funding underscores the mounting fiscal challenges facing Pakistan as policymakers work to finalize the budget for the next financial year. The outcome of these negotiations is expected to play a crucial role in shaping federal-provincial financial relations and determining how economic burdens are shared across the country.
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