The NFC Award (National Finance Commission Award)
Posted: Mon May 05, 2025 2:16 pm
The NFC Award (National Finance Commission Award) is a crucial financial mechanism in Pakistan that determines the distribution of financial resources between the federal government and the provinces. It plays a vital role in maintaining fiscal balance and ensuring equitable resource allocation across the country.
Definition:
The National Finance Commission (NFC) is a constitutional body established under Article 160 of the 1973 Constitution of Pakistan. It is responsible for formulating a financial award — the NFC Award — which distributes:
Divisible Pool Revenues (mainly taxes collected by the federal government) between:
Federation and Provinces
Among the Provinces themselves
Background & Historical Evolution:
Year Key Events / Milestones
1947 At independence, financial arrangements were governed by the Government of India Act, 1935.
1951 First attempt at financial sharing post-independence under Raisman Award.
1961 First NFC Award under the 1961 Constitution.
1973 Constitution mandated regular NFCs every 5 years under Article 160.
1974 First NFC Award under 1973 Constitution (Zulfiqar Ali Bhutto era).
1991 A significant award under Nawaz Sharif’s government — introduced sales tax on services to be provincial.
1997 Another award, but implementation faced delays.
2006 6th NFC Award failed due to disagreements among stakeholders.
2009/10 7th NFC Award — most landmark award — signed in December 2009, implemented in 2010.
2021 10th NFC formed but yet to announce a new award; 7th NFC still in effect.
7th NFC Award (2010) – A Landmark Shift:
Signed: December 30, 2009
Effective From: July 1, 2010
Chairman: Dr. Abdul Hafeez Shaikh
Significance:
Increased provincial share in divisible pool from 47.5% to 56% (FY2010) and 57.5% (FY2011 onward)
Recognized multi-factor formula instead of population-only criteria
Population (82%)
Poverty/backwardness (10.3%)
Revenue collection/generation (5%)
Inverse population density (2.7%)
Provinces allowed to collect sales tax on services
Benefits of NFC Awards:
For Provinces:
Greater fiscal autonomy
Ability to launch development projects
Better public service delivery (education, health, etc.)
Incentives for revenue generation
For National Integration:
Reduces center-province tensions
Encourages inter-provincial equity
Strengthens federalism
For Governance
Encourages fiscal discipline
Improves accountability of provincial governments
Challenges & Criticism:
Provinces depend heavily on federal transfers; limited own-source revenue
Lack of a new award since 2010 due to political deadlocks
Tensions over resource generation vs. distribution
Disputes on weightage criteria, especially population vs. backwardness
Conclusion:
The NFC Award is the cornerstone of fiscal federalism in Pakistan. While the 7th NFC Award marked a historic shift toward provincial empowerment, the need for regular updates and balanced criteria remains critical for fair and efficient resource distribution. The future of Pakistan’s fiscal landscape hinges on cooperation and consensus among stakeholders.
Definition:The National Finance Commission (NFC) is a constitutional body established under Article 160 of the 1973 Constitution of Pakistan. It is responsible for formulating a financial award — the NFC Award — which distributes:
Divisible Pool Revenues (mainly taxes collected by the federal government) between:
Federation and Provinces
Among the Provinces themselves
Background & Historical Evolution:Year Key Events / Milestones
1947 At independence, financial arrangements were governed by the Government of India Act, 1935.
1951 First attempt at financial sharing post-independence under Raisman Award.
1961 First NFC Award under the 1961 Constitution.
1973 Constitution mandated regular NFCs every 5 years under Article 160.
1974 First NFC Award under 1973 Constitution (Zulfiqar Ali Bhutto era).
1991 A significant award under Nawaz Sharif’s government — introduced sales tax on services to be provincial.
1997 Another award, but implementation faced delays.
2006 6th NFC Award failed due to disagreements among stakeholders.
2009/10 7th NFC Award — most landmark award — signed in December 2009, implemented in 2010.
2021 10th NFC formed but yet to announce a new award; 7th NFC still in effect.
7th NFC Award (2010) – A Landmark Shift:Signed: December 30, 2009
Effective From: July 1, 2010
Chairman: Dr. Abdul Hafeez Shaikh
Significance:
Increased provincial share in divisible pool from 47.5% to 56% (FY2010) and 57.5% (FY2011 onward)
Recognized multi-factor formula instead of population-only criteria
Population (82%)
Poverty/backwardness (10.3%)
Revenue collection/generation (5%)
Inverse population density (2.7%)
Provinces allowed to collect sales tax on services
Benefits of NFC Awards: For Provinces:Greater fiscal autonomy
Ability to launch development projects
Better public service delivery (education, health, etc.)
Incentives for revenue generation
For National Integration:Reduces center-province tensions
Encourages inter-provincial equity
Strengthens federalism
For GovernanceEncourages fiscal discipline
Improves accountability of provincial governments
Challenges & Criticism:Provinces depend heavily on federal transfers; limited own-source revenue
Lack of a new award since 2010 due to political deadlocks
Tensions over resource generation vs. distribution
Disputes on weightage criteria, especially population vs. backwardness
Conclusion:The NFC Award is the cornerstone of fiscal federalism in Pakistan. While the 7th NFC Award marked a historic shift toward provincial empowerment, the need for regular updates and balanced criteria remains critical for fair and efficient resource distribution. The future of Pakistan’s fiscal landscape hinges on cooperation and consensus among stakeholders.