1. What is NFC Award?
The NFC award, National Finance Commission award, is the distribution of financial resources among the
provinces of Pakistan by the federal government on annual basis.
Taxes are pooled and distributed: Certain types of taxes collected in each province are pooled, then
redistributed according to the NFC formula. What taxes to include in the distribution pool and the
distribution formula is a subject of debate.
Taxes included in the pool are (1) income taxes, (2) general sales tax, (3) wealth taxes, (4) capital gains
taxes, and (5) custom duties.
Most Tax Receipts are collected from Punjab and Sindh. Almost all custom duties are collected at the
Port of Karachi.
Background and History of NFC:
In 1971, Pakistan was cut into two by our enemies with the indirect support of our fellow Pakistani’s and
hence we lost East Pakistan to Bangladesh. There are many reasons that can be attributed to the 1971
incident but one of the major one is the ―Distribution of Resources‖ among the provinces i.e East
Pakistan and West Pakistan. Since East Pakistan was responsible for majority of our output, it was its
right to get the major portion of it as well, however, it was not allowed to take when it actually owned
and most of it was used in West Pakistan. This infuriated the Bangladeshi people and contributed
towards their final revolt against the Government owned by West Pakistan.
It is worth mentioning here for the ready reference of our readers that Bangladesh i.e East Pakistan
before 1971, was more populous then West Pakistan but it was still discriminated by the West Pakistan
i.e current day Pakistan. At that time, the distribution of resources based on population was never raised
by anyone since it would have resulted in greater share of East Pakistan from the Federal Divisible Pool
or in Federal Budget for East and West Pakistan.
Article 160(1) of 1973 Constitution:
NFC is constituted under Article 160(1) of the 1973 constitution (Annex I) and proposed to be held at
the intervals of five years. Its members are Federal Finance Minister (Chairman), Provincial Finance
Ministers and other concerning experts which the President may appoint after consultation with
provincial Governors [Constitution of Pakistan (1973)]. The main charter of NFC is to recommend on the
following [Pakistan (2006b)]:
(1) The distribution of specified taxes, duties between federation and provinces. (2) The disbursement of
grants to provincial governments. (3) The borrowing powers exercised by federal and provincial
governments. (4) Any other financial matter referred to commission.
There is a need for inclusion of other factors like infrastructure, poverty, backwardness, revenue
generation, environment, etc. to be taken into account for justifiable of resource distribution. Even if we
look at our neighboring country India, various criteria are used for resource distribution from central to
provincial governments. So, in order to achieve equity, such policies should be devised which take
different aspects of development into its account while distributing the resources. The issue of resource
distribution among federal and provincial governments never proved to be simple and is a much complex
issue. But when we go through the history of NFC, it becomes obvious that the problem of resource
distribution is never taken seriously.

2. Controversy on Sales Tax:
A peep into revenue distribution history of the sub continent reveals that sales tax was in exclusive
domain of provincial governments before 1947. It was partly federalized to the extent of 50 per cent in
1948-49 budgets, the first of independent Pakistan, to meet the impact of massive refugee influx in
Karachi which was then the federal capital.
it was in 1974 NFC award that sales tax was completely federalized and the noises made in Karachi were
ignored. It declared population as the only criterion for distribution of revenue.
Previous Awards:
SINCE 1973 after the promulgation of a consensus constitution by an elected and popular government,
there have been three national finance commission awards enforced in 1974, 1991 and in 1997. But the
three NFCs constituted in 1979, 1984 and 2,000 failed to reach consensus and ended in a deadlock.
Of the three commissions that failed, two were formed in 1979 and in 1984 during the military rule of
late General Zia-ul-Haq and the third one, the current NFC was formed in the year 2,000 after General
Musharraf took over the government in October 1999. This NFC continued functioning after the October
2002 elections with some changes in its composition.
The first NFC award was given in 1974 by the elected government of late Z.A. Bhutto. This award set
population as the only criterion for revenue distribution among the provinces. Custom duties, the main
revenue earner was kept out of the divisible pool and the sales tax was completely federalized.
The second NFC award was given in 1991 by a political government of PML headed by Mian Nawaz
Sharif. This NFC award recognized for the first time, the rights of the provinces on natural resources and
the provinces were given royalty and gas development surcharge on oil and gas.
And the third NFC award was declared in February 1997 by a caretaker government of Farooq Ahmed
Leghari and Prime Minister late Malik Meraj Khalid. It turned out to be the most controversial NFC
award, though still operative, despite the expiry of its five- year term in 2002.
7th NFC Awards:
Location: Lahore Chairperson: Finance Minister Shaukat Train Duration of arguments: 3 days
Provincial share of the divisible pool would increase from the present 47.5 per cent to 56 per cent in the
first year of NFC (2010-2011) and 57.5 per cent in the remaining years of the award under the vertical
distribution of resources. He claimed that this share would virtually be over 60 per cent. During
Musharraf regime, provinces were demanding for a 50% provincial share in the divisible pool.
The federal government has agreed to cut tax collection charges from 5.0 per cent to 1.0 per cent and
this amount would also be added to the divisible pool. About the thorny issue of sales tax on services, he
said the NFC recognized sales tax on services as a provincial subject and it might be collected by the
respective provinces.
The multiple indicators under 7th NFC Award
Multiple Indicators Weights
1 Population 82.0%
2 Poverty/Backwardness 10.3%
3 Revenue Collection/Generation 5.0%
4 Inverse Population Density 2.7% (Urban-Rural)
Out of 56 % provincial share of total divisible pool, financial resources will be distributed among the
provinces in following ration.
Punjab 51.74% Sindh 24.55% Khyber-Pakhtunkhwa 14.62% Balochistan 9.09%

3. Provincial Autonomy in Pakistan
Introduction:
Complete provincial autonomy means absolute independence of provincial government.
Constitution in Pakistan is going through a major reshape under proposed 18th amendment and
provincial autonomy is focus of this process and a buzzword in Pakistan now a day. Provincial autonomy
means a system of provincial government independent and free from any external influence or reliance.
Provincial Autonomy in 18th amendment:
The 18th amendment to Pakistan’s constitution became law after country’s President signed it on April
19, 2010. This historic accomplishment was achieved after many rounds of discussions and
compromises. The key achievement of endeavor was restore much of the original 1973 constitution and
to shift away the massive power that was given to the Presidency under military dictators General Zia-ul-
Haq and General Pervez Musharraf. However, the people of small provinces were once again cheated
away and the promise of provincial autonomy was largely limited to cosmetic changes and use of buzz
words such as abolition of the concurrent legislative list containing subjects where the Federal
government and the four provincial had shared jurisdiction prior to the 18th amendment. Indeed, it was
the long standing demand of provinces to do away with concurrent list and restore sole provincial
jurisdiction as provinces had enjoyed under British before Pakistan was created. Deletion of concurrent
list is the crux of the matter in this scenario.
1. Article 38 .Promotion of social and economic well-being of the people.- Added new paragraph (g) the
shares of the Provinces in federal services, including autonomous bodies and corporations established
by, or under the control of the Federal Government, shall be secured and any omission.
2. Article 156 – National Economic Council – 18th Amendments adds words ―added ―Balanced
development and regional equity‖.
3. Article 161 – Natural gas and hydro-electric power – 18th Amendment adds clauses that:
(a)• the net proceeds of Federal duty of excise on natural gas levied at well-head and collected by the
Federal Government and of the royalty collected by the Federal Government, shall not form part of the
Federal Consolidated Fund and shall be paid to the Province in which the well-head of natural gas is
situated;
(b) the net proceeds of the Federal duty of excise on oil levied at well-head and collected by the Federal
Government, shall not form part of the Federal Consolidated Fund and shall be paid to the Province in
which the well-head of oil is situated.
4. Article 167 – Borrowing by Provincial Government — 18th Amendment: After clause (3) the following
new clause shall be inserted, namely :‖( 4) A Province may raise domestic’ or international loan, or give
guarantees on the security of the Provincial Consolidated Fund‖.
5. Article 172 – Reports of Auditor-General – 18th Amendment adds a provision that ―Subject to. the
existing commitments and obligations, mineral oil and natural gas within the Province or the territorial
waters adjacent there to shall vest jointly and equally in that Province and the Federal Government‖.
Although it was the demand of the provinces that they should have equal ownership in all mineral oil
and natural gas fields including the existing ones which the above clause continues to keep under

4. federal ownership. Nevertheless, it is a reasonable compromise.
6. Under the 18th amendment, the following matters are moved from PART I (where jurisdiction is
strictly federal) to PART II (where Council of Common Interests advises):
* Electricity
* Major Ports
* Census
* National planning and national economic coordination
* Legal, medical and other professions
*Standards in institutions for higher education and research, scientific and technical institutions.
7. Other than some jurisdictions from Concurrent Legislative List and Part I of Federal Legislative list that
have been moved to PART II of Federal Legislative list, the Concurrent List is abolished and the
Provinces regained the jurisdictions on the following matters:
* Sales Tax on Services (The fact is in most democratic countries.
* Duties in respect of succession to property.
* Estate duty in respect of property.
Conclusion:
Provincial autonomy is our main national issue though there are constitutional provisions available to
implement it. We as a nation are living under a system that was enacted to safe guard imperialist
designs. But now we should emerge as an honorable and independent nation. For this, we must draft a
new social contract. But do not have such social, economical and political factors which can cause in
declarations of new social contract.

5. ASSIGNMENT
POLITICAL SCIENCE # 3
WHAT ARE THE CONTRIBUTIONS OF NFC AWARDS IN INSURING
PROVINCIAL AUTONOMY IN PAKISTAN
SUBMITTED BY:
FARAH AKRAM
SEMESTER: 7
SUBMITTED TO:
1. MIS ZAMMURAD
KINNAIRD COLLEGE FOR WOMEN LAHORE