'Pakistan Institute of Development Economics (PIDE)'
Doi
Abstract
The financial status of provincial governments in Pakistan
hinges largely on federal transfers to the provinces constituted through
National Finance Commission (NFC) Awards. These awards design the
formula of distribution of resources between federal and provincial
governments, and among the provinces for five years. Historically,
federal and all provincial governments have tried their level best to
get a higher share of the revenues in order to stabilise their own
financial status. As a result, there are very few examples of consensus
based conclusive awards in the past. These consensus based awards have
had different gainers. For instance, in the NFC Award 1991, provincial
governments were the main beneficiaries as they received substantially
higher shares of buoyant taxes such as sales and income taxes. In
contrast, the largest beneficiary of the NFC Award 1997 was the federal
government as it allocated higher shares of all taxes to itself in order
to stabilise its financial status. Given the sensitivity attached to NFC
awards, where an increase or decrease in the share of any tier of the
government affects the share of other tiers with the same magnitude in
the opposite direction, it seems very difficult to develop a consensus
among federal and provincial governments. As a result, since the
separation of East Pakistan, there have been only three conclusive NFC
Awards (1974, 1991, 1997) and one presidential distribution order (2006)
prior to the 7th NFC Award