WITH the structure of the eleventh Nationwide Finance Fee, the controversy round income sharing takes center-stage. For years, the federal authorities has repeated that 57.5 % of federal revenues are allotted to provinces, constructing the narrative that it’s cash-strapped. This argument, whereas politically handy, is deceptive. When one examines the complete composition of federal revenues, it turns into evident that the federal authorities retains near 60pc of whole revenues. A rising share of that is collected outdoors the NFC’s divisible pool, significantly by way of the petroleum levy.
Whereas politically expedient, counting on the petroleum levy and different surcharges as non-shareable income is deeply problematic. It bypasses the constitutional rules of the NFC, weakens the mechanism designed to make sure truthful federal-provincial fiscal relations, and concentrates fiscal discretion within the arms of the federal government. By making a parallel pool of revenues untied to the NFC components, the middle undermines transparency, and erodes belief in federalism. The narrative that provinces are draining the middle’s assets is fake and distracts from structural points in federal funds.
One other persistent fallacy is the proposal that provincial transfers must be tied to efficiency, usually implying that the middle ought to oversee provincial outcomes. At first look, such arguments could appear cheap: if assets are allotted, accountability seems justified. Nonetheless, this line of reasoning misunderstands Pakistan’s fiscal federalism. The NFC was designed solely as a mechanism for income sharing, not as a supervisory instrument. Provinces have constitutionally outlined duties, strengthened by the 18th Modification, and conditioning transfers on federal evaluation dangers violating the spirit of federalism.
Furthermore, if efficiency had been to find out transfers, the precept should apply equally to the federal authorities, whose personal failures in tax assortment, alternate fee administration, and debt administration immediately form the fiscal surroundings during which provinces function. One-sided accountability, the place provinces are scrutinized whereas the middle is shielded, displays political expediency greater than financial prudence.
A everlasting technical NFC will guarantee debates are grounded in proof quite than slogans.
Equally deceptive is the declare that the seventh NFC Award is chargeable for the federal authorities’s rising debt. Pakistan’s debt downside arises primarily from structural weaknesses and coverage failures on the federal degree. Two vital areas bear explicit accountability. First, the federal government’s alternate fee administration has been erratic and sometimes counterproductive. Persistent overvaluation in some durations, adopted by sharp devaluations, has generated uncertainty, inflated the native foreign money worth of foreign-denominated debt, and contributed to excessive inflation.
Second, Pakistan’s tax insurance policies have persistently failed to boost income to sustainable ranges. The federal tax-to-GDP ratio stays among the many lowest within the area, reflecting poor base protection, extreme exemptions, and weak enforcement. Collectively, these two coverage failures, poor alternate fee administration and insufficient taxation, have pushed deficits, pressured borrowing, and worsened debt sustainability. Misattributing debt accumulation to provincial transfers permits the federal authorities to keep away from the reforms required to stabilize public funds, together with rationalizing expenditure, enhancing state-owned enterprises’ effectivity, and reforming pensions.
Recognizing these fallacies is step one in direction of reform. What Pakistan urgently wants is a everlasting, technically grounded NFC as a foundational layer of the NFC structure. At present, the NFC primarily capabilities as a political negotiation each 5 years, producing headline-grabbing percentages with out rigorous evaluation. A standing physique of economists and monetary consultants might present clear, evidence-based suggestions, monitor income distribution throughout tiers, mannequin various formulation for divisible and non-divisible swimming pools, and guarantee transfers mirror a altering growth panorama.
Institutionalizing technical experience would remodel NFC negotiations from episodic political contests into disciplined, data-driven policymaking, stop politically motivated distortions, guarantee transparency, and construct belief between the middle and provinces.
Alongside a everlasting NFC, Pakistan should additionally deepen tax devolution to provinces and cities, however each the federal and provincial governments share accountability for present weaknesses. Whereas the federal authorities has centralized tax assortment, leaving provinces with restricted authority, provincial governments have usually blocked native authorities programs and resisted significant devolution. This mutual reluctance has created a cycle during which provinces stay depending on federal transfers, cities are underfunded, and residents see restricted accountability.
Strengthening subnational fiscal capability requires reform at each ranges: granting provinces and cities significant tax powers, together with property taxes, and unified gross sales taxes, whereas modernizing income administrations by way of digitalisation and analytics. Linking native income mobilization to service supply would be sure that fiscal authority is matched with citizen expectations and that native governments can turn into viable devices of governance.
Taken collectively, these reforms tackle each the misconceptions surrounding NFC distribution and the structural realities of Pakistan’s fiscal panorama. Clarifying the true share of revenues corrects the false narrative of provincial generosity undermining the middle. Instituting a everlasting technical NFC ensures debates are grounded in proof quite than slogans. Increasing tax authority to provinces and cities strengthens fiscal capability, enhances accountability, and improves service supply. Every of those steps contributes to a balanced federal system, the place assets are aligned with duties and all tiers of presidency are incentivized to carry out effectively.
Addressing Pakistan’s fiscal challenges requires greater than debates over numbers or blame-shifting. Policymakers should decide to long-term reforms that strengthen institutional capability, implement fiscal self-discipline, and create incentives for all tiers of presidency to boost and handle assets successfully. By embedding technical rigor into revenue-sharing mechanisms and empowering decrease tiers of governments to mobilize and make the most of assets effectively, Pakistan can construct a extra resilient fiscal structure. Solely by way of constant, evidence-based policymaking and cooperative governance can the nation be sure that public funds translate into tangible providers, financial progress, and belief in federalism for the residents it serves.
The author is an affiliate professor of economics on the Lahore Faculty of Economics.
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Revealed in Daybreak, January 14th, 2026
