Pakistan's federal constitutional system provides how its finances powers and resources would be distributed among various federating units. This slide show introduces the readers about that.

1. Financial Federalism in Pakistan
& National Finance Commission
(Art. 160 to 174)
Dr Shahbaz Ahmad Cheema
University Law College,
University of the Punjab, Lahore

2. Different Types of Governments
• Unitary Government
Central government with local bodies
• Confederation
Extremely decentralized and loose union of
almost independent states
• Federation
Distribution of powers and resources among
central and federating units (provinces & states)

3. Merits of Federation
• Unity with diversity (territorial, ethnic,
religious, race)
• Encouraging pluralism by catering for local
and diverse needs and requirements of
people
• Experimentation is possible in legal, socio-
economic priorities and plans

4. Pakistan as a ‘Federation’
• Distribution of Governmental Powers and
Resources
• Governmental powers:
a. Executive,
b. Financial
c. Legislative, and
d. Judicial
• Resources:
Taxes, properties & financial activities

5. Fiscal Federalism
National Finance Commission
(Art. 160)
Important Issues
History
Composition & Functions
Mechanism & Implications

6. Important Issues for NFC
• What ought to be included in ‘divisible pool’?
 Income tax, general sales tax, wealth tax, capital
gain tax and custom duties
• How the resources of ‘divisible pool’ should be
divided among federal government and
federating units?
 50 : 50, 40 : 60, 30 : 70, 20 : 80
• What should be the criterion for distribution?
 Population; territory; poverty; development;
contribution in resources and austerity etc.

7. History of NFC 1
• Niemeyer Award in British India under the
Government of India Act 1935
• Raisman Award Program in 1951
• Three Awards (1961, 1964 and 1970)
• 50% resources allocated to provinces under
one unit structure (East & West Pakistan)
• More population along with under-
development in East Pakistan provided
impetus for secession

8. History of NFC 2
• Hamood-ur-Rehman Commission identified
unjust distribution of resources as one factor
for secession of East Pakistan
• Political government and parties decided to
constitute NFC under the Constitution of 1973
• Seven awards have been announced up till
now: 1974, 1979, 1985, 1991, 1996, 2006,
2010.

9. Composition & Functions of NFC
• NFC is comprised of federal minister of
finance, provincial ministers of finance and
such other persons appointed by the
president
• NFC shall perform following functions:
Distribute net proceeds from taxes
Make grant in aid by the federal government
Exercise borrowing powers

10. Mechanism & Implications of NFC
Award 1
• 1st NFC Award of 1974:
Population declared as sole criterion for
distribution
Income tax, sales tax and export duty included in
divisible pool
Custom duty was not placed in divisible pool
20 for federation and 80 for federating units
Punjab secured more than its previous allocation
and Sindh was the most adversely affected

11. Mechanism & Implications of NFC
Award 2
• 4th NFC Award of 1991:
 Right of provinces over their natural resources recognized
 They were given royalty and gas development surcharge on
oil and gas
 Share of provinces increased by 18% as compared to the
award of 1974
• 7th NFC Award of 2010:
• Multiple Criteria
 Population
 Backwardness and poverty
 Tax efforts and fiscal austerity
 Area

12. Auditor General of Pakistan
(Art. 168 to 171)
Appointment & Independence
Jurisdiction
Powers & Functions
Prohibited Areas

13. Appointment & Independence of AGP
• AGP is appointed by President under Art. 168
• The Auditor General’s (Functions, Powers, Terms and
Conditions of Service) Ordinance 2001
• For ensuring independence of AGP following measures
have been prescribed:
 Special procedure for removal (Art. 209)
 Fixed tenure (Four years or age of 65)
 Control over resources/budget (It’s budget is placed before
Parliament, but not voted upon)
 Immunity/protection from actions by others in its
performance of duties
 Independence to frame work plans

14. Jurisdiction of AGP
• Federal Government
• Provincial and local governments
• Bodies not owned but substantially funded by the government
• banks whose capital forms part of the Federal, Provincial and local
government and autonomous bodies substantially funded by the
government
• Entities owned or controlled by Federal, Provincial and local governments
and other entities owned or controlled by such government owned or
controlled entities
• Audit of Receipt of the government
• Aid or grants provided by Foreign Government
• Public utility/Agencies providing public services even if they are privately
funded and managed
• Regulatory bodies (e.g. Privatization, Environment, Pollution Control,
Telecom etc.)

15. Powers & Functions of AGP
• AGP prescribes the manner in which federal,
provincial governments and other entities would
maintain their accounts
• AGP is authorized to conduct the audit of the
entities mentioned earlier on its own initiative
• Generally audit is conducted after three years
(audit cycle); but of high risk entities, it is
conducted annually
• Reports of the audits submitted to President or
Governor for presenting before Assemblies/PAC

16. Prohibited Areas for AGP
• AGP cannot:
 Seal, search and seize documents and other related
items for audit and inspection
 Seek testimonials of the persons
 Seek co-operation of persons other than entities
subject to audit
 Instruct investigating agencies to perform activities
 Decide on claims of interested persons in connection
with official actions, duties
 Take punitive action and/or impose surcharges
• AGP is not a judicial institution

17. Properties
(Art. 172 & 173)
• Ownerless properties if located in a province,
they will vest in it, otherwise they belong to
federation
• Lands, minerals and valuables within continental
shelf or beyond territorial waters vest in
federation
• Mineral oil and natural gas within a province or
territorial waters shall be joint property of the
province and federation
• Federation and provinces can enter into contracts
for acquiring and disposing of its properties

18. Suits (Art. 174)
• Both federation and provinces are legal
entities
• They can be sued by their own name and can
sue in the same manner
• There is a comprehensive set up for both
dealing in these matters:
Attorney General of Pakistan under Art. 100
Advocate General of any province under Art.
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