The federal government has proposed a significant revenue push during the first meeting of the 11th National Finance Commission. It aims to raise over five percent of GDP in additional consolidated revenues within three years. At current economic conditions, this equals nearly Rs6.5 trillion each year.
Officials argued that the Centre is under pressure due to rising debt servicing costs. They said these challenges intensified after 2010. They stressed that stronger revenue mobilisation is the only way to stabilise the fiscal system.
Government Proposes Higher Tax Effort by Federal and Provincial Authorities
During the session, the Centre asked the national tax authority to increase the tax-to-GDP ratio. It wants the ratio to grow by 3 to 3.5 percentage points over three years.
At the same time, provinces have been urged to increase their own revenue share to 3 percent of GDP. Currently, provincial taxes contribute only 0.28 percent of GDP. The Centre recommended stronger collection in property tax, agriculture income tax, and sales tax on services.
Officials said that these steps will help reduce the deficit. They noted that the deficit has climbed from 4 percent to more than 6.6 percent. They blamed this rise on imbalances that emerged after the 7th NFC award.
Provinces Reject Speculation on Divisible Pool Adjustments
Participants clarified that no proposal was made to reduce the provincial share in the divisible pool. They stated that responsibilities of the Centre and provinces fall under separate constitutional forums.
They also noted that resource needs of Azad Kashmir and Gilgit-Baltistan will be reviewed through working groups.
Seven Working Groups Formed to Advance NFC Negotiations
A key outcome of the meeting was the agreement to form seven thematic working groups. These groups will study vertical and horizontal distribution, debt servicing impacts, poverty issues, and taxation strategies.
A special group will examine the fiscal and social impact of the merger of tribal districts with Khyber Pakhtunkhwa.
The second NFC meeting will take place between January 8 and 15, depending on the completion of reports.
Provinces Emphasise Autonomy Under the Constitution
Provincial representatives stressed that they cannot be bound by federal spending priorities. They pointed to Article 160, which ensures provincial autonomy on expenditure choices.
They noted that detailed expenditure data is available through each province’s published budget documents.
Federal officials suggested that an opinion from the Attorney General may help clarify certain constitutional interpretations. They said this would assist in determining whether spending priorities align nationally.
Centre Outlines Pressing Fiscal Challenges After the 7th NFC Award
The federal government explained that the continuation of the 7th NFC award had created major fiscal strain. Officials said most federal resources now go to interest payments. As a result, development spending and defence budgets remain under pressure.
They argued that national stability requires revenue efforts from both the Centre and the provinces. They agreed that a stronger federation depends on strong provincial finances as well.
Provinces Acknowledge Need for Cooperation and Consensus
The meeting was held in a cordial environment. Leaders from Sindh, Punjab, KP and Balochistan highlighted their fiscal constraints. They also reaffirmed their intent to work through dialogue.
KP representatives thanked the Centre for addressing concerns about merged districts. They said the region needs updated representation in future NFC calculations.
Punjab stressed that consensus building will take time but remains essential. Balochistan emphasized its historic contributions to the federation through major national projects.
KP Insists on Updating Shares for Merged Tribal Districts
KP leadership told reporters that depriving the province of its revised share would be unconstitutional. They welcomed the formation of sub-committees dedicated to these issues.
They said the next meeting in January will be crucial for finalising the province’s updated share.
