The separation of East Pakistan in 1971 may have been instrumental in raising the demand for provincial autonomy in West Pakistan. This demand became an integral part of intense political discourse and was ceded in the 1973 Constitution. However, the uneven share in the national resources, the Concurrent List and retention of some subjects of purely provincial nature by the Centre led to renewed demands for a fairer constitutional dispensation. Almost all the political parties of the country vociferously supported this demand. A concrete step towards this direction was taken when two major parties - PPP and PML-N - signed the Charter of Democracy on May 14, 2006, which promised provincial autonomy. To purge the 1973 Constitution from the pollution caused by the late tyrant, General Ziaul Haq, and later by the commando, General (retd) Pervez Musharraf, a committee headed by Senator Mian Raza Rabbani was formed in April 2009 to undertake the drafting of constitutional reforms, including the thorny issue of provincial autonomy. The committee worked for about a year and, as a result of 77 meetings, prepared a comprehensive document. The 18th Amendment was approved by the National Assembly and Senate, and was formally signed by the President of Pakistan on April 19, 2010. The seventh National Finance Commission (NFC) Award and the 18th Constitutional Amendment have met a long outstanding demand of the federating units for a larger share in the countrys financial resources and exclusive legislative authority in all domains of public life, except the few that may be legitimately retained by the federal government. Since the NFC Award was announced before the 18th Amendment had been tabled, there are serious fiscal problems that the federation and the provinces are facing. It has been hailed as a milestone for achieving fiscal federalism in the country. It reflects a new political consensus about the necessity of transferring resource control to the provinces. It does that, firstly, by increasing the share of the provinces in the federal divisible pool from 47.5 percent to 57.5 percent, which is a significant rise of 10 percent. Furthermore, the formula for resource distribution in the award is not solely based on population (the long applied criterion vociferously endorsed by the Punjab province), but with poverty, revenue generation, and inverse population density now being applied as distributive criteria. Moreover, outstanding issues, such as arrears owed to Khyber Pakhtunkhwa on net hydel profits and Balochistan on Gas Development Surcharge (GDS) by the centre, have been agreed upon. The award has crucially recognised the frontline status of Khyber Pakhtunkhwa in the war on terror by apportioning an additional 1 percent of the total divisible pool to the frontier province. It also facilitates the preservation of a fully harmonised tax system in Pakistan. It has enabled the federal government to retain major revenue-raising responsibilities to achieve greater efficiency in tax collection and administration and lower the compliance costs of the tax system. These arrangements have avoided tax jungles that continue to block the reform of sales taxes in India. However, fiscal problems of serious magnitude have arisen. The increase in resources was to be financed from the levy of a value added tax, which would include goods and services and the transfer of expenditure obligations from the federal budget to the provinces in line with the process of devolution envisaged in the 18th Amendment. The Value Added Tax (VAT) faced stiff public opposition and could not be imposed. Another effort of the government to impose it in the form of Reformed General Sales Tax (RGST) also floundered and has been consigned to the dustbin. The NFC formula for distribution of funds is being followed without VAT or RGST having been imposed. This is straining federal resources. The provinces have been unable to raise the additional committed resources, which could have been used for effective administration of devolved responsibilities. It is a matter of great concern that due effort to tax agriculture, real estate and services has not been made. For tax collection by provinces to total less than one percent of the GDP is ridiculous. This trend has to be reversed. Those provinces that are unable to mount a serious tax collection effort cannot be allowed to benefit from the increased share in the divisible pool. A minimum threshold should be determined. The matter can be considered by the Council of Common Interests. The council should lay down fiscal targets for each province. In addition, a structure should be developed so that the provinces recognise their accountability to taxpayers and the responsibility to utilise these resources efficiently and in a transparent manner. The NFC Award and the 18th Amendment are of historic significance. History will record Asif Ali Zardari, as the first President of Pakistan to voluntarily curtail his constitutional powers. That represents a signal shift away from the country's long history of authoritarianism. Senator Rabbani, recently, noted: Pakistanis cannot expect constitutional reform to lead to greater freedoms and accountability, until we have the will to implement it. However, a major milestone on the journey to genuine democracy has been reached. n The writer is a retired secretary of the Government of Pakistan. He is a member of the former Civil Service of Pakistan. 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