KARACHI  -  Sindh Chief Minister (CM) Syed Murad Ali Shah in his meeting with a delegation from the United Nations Fund for Population Activities (UNFPA) led by its Country Representative Dr Luay Shabaneh agreed that the formula for the National Finance Commission (NFC) Award should take into account factors such as income disparity, demographic performance, human development, tax efforts, and forest cover. The meeting was held at the CM House on Monday and was attended by Health and Population Minister Dr Azar Fazal, Secretary to the Chief Minister Raheem Shaikh, and Secretary for Population Hafizullah Abbasi. The UNFPA team included Dr Ashfaq Khan, Director General of NUST, head of UNFPA Sindh Muqaddar, and Programme Analyst Renuka Swami, a CM House communique said.

In a significant step toward ensuring the equitable distribution of financial resources and promoting sustainable economic growth, the chief minister and UNFPA visiting team analysed the NFC Award. CM Murad Shah said that for the first time, multiple criteria have been adopted for the distribution of resources under the 7th NFC Award. He emphasised that since 2008, the Pakistan People’s Party (PPP) has advocated for provinces to have full authority over sales tax collection to improve revenue generation. Shah explained that provinces are closer to consumers, which makes them more efficient in tax collection. However, he pointed out that 90 percent of taxes in Pakistan are collected at the federal level, while provinces are only responsible for collecting 10 percent of taxes themselves.

“This dependence forces provinces to rely on federal allocations,” he said and added that granting full financial autonomy to provinces would not only enhance tax collection but also ensure a more effective distribution of resources. Dr Ashfaque Khan, Director General of the NUST Institute of Policy Studies, presented a comprehensive overview that highlighted the historical evolution of the NFC, existing fiscal imbalances, and the need for a reformed approach to revenue sharing. The National Finance Commission (NFC) is a constitutional body responsible for distributing tax revenue between federal and provincial governments. Under the Constitution, the NFC is formed every five years to devise an appropriate mechanism for financial allocation.

Pakistan’s revenue-sharing framework traces back to the Niemeyer Award (1935), which was later modified after independence in 1947. The first formal NFC Award (1951), introduced by prime minister Liaquat Ali Khan, was known as the Raisman Award. Several subsequent awards were introduced, but early awards (1961, 1964, 1970) were inconclusive. A significant shift occurred after 1971 when population became the primary factor for resource allocation, a trend that persisted until the 7th NFC Award, which introduced multiple criteria. During the discussion, it was pointed out that unlike many countries where population plays a minimal role in financial distribution, Pakistan has historically based resource allocation primarily on population size. The 7th NFC Award (2009) was the first to adopt a multi-factor formula, reducing the population’s weight from 100 percent to 82 percent and incorporating factors like poverty levels, revenue generation, and inverse population density.

The presentation included a detailed census analysis, illustrating significant population growth trends and their implications for financial planning. Pakistan’s population increased from 33.7 million in 1951 to 241.5 million in 2023, highlighting the urgency for a balanced, growth-oriented NFC formula. Dr Ashfaque Khan suggested that policymakers consider international best practices while addressing Pakistan’s unique challenges. For the fiscal year 2023-24, Pakistan’s nominal GDP stood at $375 billion, with a per capita income of $1,552. However, had Pakistan’s population been lower, the economic outlook would have been significantly different. Pakistan’s rapid population growth has had a direct impact on economic performance. Dr Ashfaque said Pakistan’s NFC structure, however, has been politicised, leading to statistical manipulation and incentivising provinces to overstate population figures during census exercises. This has made population size and growth rates politically sensitive factors. A reformed NFC formula, focused on de-politicisation and an equitable, data-driven approach, is essential to ensuring a fair and progressive financial distribution mechanism in the country.

It was proposed that criteria for horizontal distribution among provinces may have certain parameters and weight. It was proposed that the Income gap may be given weight 30 percent, population (2023) 10 percent, demographic performance 17.5 percent, human development index (HDI) 10 percent, area 7.5 percent, tax effort 5 percent, and forest cover 5 percent.