NATIONAL FINANCE

COMMISSION

Prepared by: Javed Ahmed (21705)

Faculty: Sir Kashif Imran
Dated: 16 June, 2019
 DEFINITION
 The National Finance Commission Award or NFC is a
series of planned economic programs in Pakistan
enacted since 1951.Constituted under the Article
160 of the Constitution, the program was emerged to
take control of financial imbalances and equally
managed the financial resources to four provinces to
meet their expenditure liabilities. As per
Constitution, the program awards the designs of
financial formulas of economic distribution to
provincial and federal government for five
consecutive years. All together, a total of seven
awards has been reimbursed since its emergence in
1951, by Prime Minister Liaquat Ali Khan
 In federal law and the Constitution

 The National Finance Commission is constitutionally

established by the Constitution which laid the
foundation of equal distribution of revenues between
the federal and four provincial governments of
Pakistan. The Constitution grants powers
to President of Pakistan to constitute the program
in five consecutive years, whose constitutional
purpose is to supervise the system of fiscal transfer to
correct the vertical fiscal imbalance between
provincial and federal government, and horizontal
fiscal imbalances between four provinces.
In federal law and the Constitution
The Constitution further stated:

 The share of the Provinces in each Award of National Finance

Commission shall not be less than the share given to the
Provinces in the previous Award.

 The Federal Finance Minister and Provincial Finance Ministers

shall monitor the implementation of the Award biannually and
lay their reports before both the State Parliament and
Provincial Assemblies.

— Article 160–165A: Finance, Property, Contracts and Suits; Part-VI,

Chapter:1 Finance, source: The Constitution of Pakistan
 Background and History of NFC:
 The program's existence was emerged in 1951
when Prime Minister Liaquat Ali
Khan responded remarkably for initiating a
series of new economic programs. This
revenue sharing program was called
"Raisman Award Program", and was notified
on 1 April 1, 1952. The Raisman program had
gained control of taxation and transferred
to federal government with allocations of
50% of proceeds to the provinces. 
 Background and History of NFC:
 The Raisman program enacted the awards during the
promulgation of One Unit Program, and equally
distributed with West-Pakistan and East-Pakistan. In 1970,
the Raisman program enacted the third award during the
martial law and a year before East Pakistan seceded. Its
results too remain inconclusive like 1961 and 1964 awards.
Since East Pakistan was responsible for majority of our
output, it was its right to get the major portion of it as well,
however, it was not allowed to take when it actually
owned and most of it was used in West Pakistan. This
infuriated the Bangladeshi people and contributed
towards their final revolt against the Government owned
by West Pakistan.
 Background and History of NFC:
 After the separation of East-Pakistan as a direct resulting
end of war with India in 1971, Prime Minister Zulfikar Ali
Bhutto's government formed the commission under Chief
Justice Hamoodur Rahman to investigate and study the loss of
East Pakistan. While many factors had pointed out by the
commission, but the one emphasized the "Distribution of
Resources" between each contingent.

 It is worth mentioning here that East Pakistan before 1971, was

more populous then West Pakistan but it was still discriminated
by the East Pakistan. The issue of population growth was never
calculated, since many had realized that if such factors
determined, it would have resulted in greater share of East-
Pakistan from the Federal Divisible Pool.
 Background and History of NFC:
 Efforts were applied to end the economic
disparity and depression among federal government and provincial
governments of Pakistan by the government. While drafting the
new Constitution in 1973, the issue of financial distributions, economic
equality, and economic justice was specifically mentioned in separate
chapter of the Constitution. The Article 160 of the Constitution of
Pakistan, laid the foundation and philosophical existence of the
National Finance Commission (NFC) and provides the logical
framework of (NFC), in 1973. The Constitution was unanimously
approved by the all and major political parties in the country, and
successfully promulgated the constitution in 1973. During the fiscal
period from 1973 to 1974, Zulfikar Ali Bhutto and his government
collaborated with the provincial governments of four provinces and
successfully enacted the financial award under NFC program; the award
proved to be success after it had produced a positive conclusive results
in 1974.
 Tax Pool
The NFC generalizes the five kinds of taxation, including the income taxes, sales
tax, wealth taxes, capital gains taxes, and custom duties taxes. 

 Majority of the taxation and revenues are collected from Punjab and Sindh provinces

of Pakistan. Almost all custom duties are collected at the Port of Karachi. Based on
the formula determined in 1997, the taxation revenue collected from four provinces
are:
Taxes Collection

Punjab Sindh
7% 3% Balochista KPK
n
25% 65%
 7th NFC Awards:

 Due to growing economic and financial demands, the NFC

formula had to be changed to modern formula to compete
with economic challenges. In 2009, Finance Minister Shaukat
Tarin stated that population won't be the only parametric
equation used in calculating the next NFC award.
 The seventh award under the NFC program showed the
multiplication and divisional factors and the functions in
respect to following listed issues:
  
 Inverse population decay and exponential rate
 The derivative change of poverty and societal backwardness
 Provincial GDP growth and revenue collection
 Urban density factor
 7th NFC Awards:

IN 2009, THE FACTOR OF POVERTY WAS THE INVERSE POPULATION DENSITY

INSERTED IN DETERMINING THE NFC BECAME PRIME FACTOR IN CALCULATING
AWARD. THE NFC AWARDS PROGRAM.
 7th NFC Awards:

 After reaching concession with the four

provinces and the federal government, the
seventh NFC award was enacted by the
program and ultimately, the seventh award
produced the conclusive results. 
 Finally in 2009, President Asif Ali
Zardari signed the final release papers and
enacted the 7th NFC Award under the NFC
program.
 Previous NFC programs
 Since 1951, there had been three awards enacted
during the fiscal year of 1951, 1961 and 1970 under
the undisclosed circumstances and its results
remained inconclusive. Before 1951, the sales tax
was in exclusive domain of provincial governments
and it was partly federalized to the extent of 50% in
1951 under the Raisman Program of Prime Minister
Liaquat Ali Khan. However, it was in 1974 when all
sales tax was completely federalized and Prime
minister Zulfikar Ali Bhutto declared population as
the only criterion for distribution of revenue.
 Previous NFC programs
 The first official NFC award was enacted under this
program in 1974 by the government of Prime
minister Zulfikar Ali Bhutto, which produced a
conclusive results. However, the two NFC Awards
enacted during the fiscal period of 1979 and 1984
remained inconclusive as President Zia-ul-Haq failed
to reach consensus and ended in a deadlock. The first
award was enacted as setting the population as the
only criterion for revenue distribution among the
provinces. Custom duties, the main revenue earner
was kept out of the divisible pool and the sales tax
was completely federalized.
 Previous NFC programs
 The fourth NFC award was declared in 1991 by
the PML government after successfully reaching the
concession with the four provinces. For the first time in
the short history of Pakistan, the fourth NFC Award had
recognized the rights of the provinces on natural resources and
the provinces were given royalty and gas development
surcharge on oil and gas. The first fifth NFC Award was
announced in 1995 by Prime Minister Benazir Bhutto. The first
fifth award remained highly controversial and debatable at the
country's news channels. Soon, the second fifth award was
announced by Prime minister Nawaz Sharif in 1997 after his
rival, Benazir Bhutto, was dismissed. Although it remains
conclusive on many parts, but the opposition targeted the
implementation of the program.
 Previous NFC programs
 In July 2000, Finance minister Shaukat Aziz presided the
convection of National Finance Commission (NFC) to finalize
the sixth award, due to constitutional termination of fifth
awards program. In 2001, the commission was constituted
under President Pervez Musharraf to supervise the work on
sixth award. Finally in 2002, the sixth NFC award under the
NFC program was enacted by President Pervez Musharraf
but failed to reach a consensus decision. Although it was
enacted but the sixth award's results remained inconclusive.
 In 2010, the seventh NFC award was successfully enacted
by President Asif Zardari after reaching a united concessions
with the four provinces.
 
SUMMARY
 SUMMARY
 Due to a constitutional obligation, the NFC
Award cannot be announced if the four
provinces have failed to develop consensus.
and due to the program producing a political
realignment and the constitutional stipulation
regarded a unanimous political concession
between four provinces, the program has fever
conclusive results, and only seven awards has
been enacted since its emergence in 1951.[