The federal government on Thursday urged provinces to enhance their share of tax revenues from the existing 0.28% to 3% of GDP, proposing measures such as taxes on property, agricultural income and sales tax on services.
During the inaugural meeting of the 11th National Finance Commission (NFC), the center said such measures have become necessary to stabilize the fiscal deficit, which has climbed from around 4% to 6.6% since the 7th NFC Award of 2010. This, stressed the federal government, had massively impacted the debt-to-GDP ratio.
Chaired by Finance Minister Muhammad Aurangzeb, the meeting included the chief ministers of Sindh and Khyber-Pakhtunkhwa, as well as the finance ministers of Punjab and Balochistan. Four provincial non-statutory NFC members, KP chief minister’s adviser Muzammil Aslam, and federal and provincial finance secretaries also participated.
Speaking with journalists after the meeting, participants clarified that Islamabad had not forwarded any demands for reducing the provincial share in the divisible poll from the existing 57.5%. They said the meeting had decided to form seven different working groups, which would submit their reports by Jan. 8. A second meeting of the NFC would deliberate on these reports and would take place between Jan. 8 and Jan. 15, they added.
The groups would deliberate on horizontal and vertical distribution of resources, how the provinces should advance taxation policies, impacts of debt servicing, poverty, population, among others. A special working group was formed on the request of Khyber Pakhtunkhwa to examine the fiscal and social impact of the merger of the erstwhile tribal districts.
Building consensus
In a statement, the Finance Ministry said Aurangzeb had highlighted the constitutional importance and collaborative spirit underpinning the NFC process. He said the government had wished to convene the inaugural meeting without any delays to fulfill a vital constitutional responsibility, noting it was postponed solely because of the devastating floods affecting Punjab, Khyber-Pakhtunkhwa and Sindh.
The minister reiterated the government’s commitment to transparent and sincere dialogue, reaffirming that the federal government was present to listen to the provinces and work collectively in the national interest. He commended the provinces for their cooperation in signing the National Fiscal Pact and acknowledged their efforts in achieving mandatory fiscal surpluses to support Pakistan’s compliance with requirements under the ongoing bailout with the International Monetary Fund (IMF).
Aurangzeb underscored the critical role of the NFC in ensuring equitable distribution of financial resources, promoting fiscal sustainability and supporting long-term economic growth. He hoped the NFC would engage in meaningful and inclusive dialogue to deliver a fair and forward-looking NFC Award.
During the meeting, Sindh Chief Minister Murad Ali Shah thanked the federal government for holding the first meeting of the 11th NFC, noting it was promptly notified in August 2025 after the expiry of the 10th NFC Award in July. He agreed with the federal finance minister on the importance of moving forward with consensus, stressing this required deliberating within the forum of the NFC.
Similarly, Khyber-Pakhtunkhwa Chief Minister Sohail Afridi also thanked the federal government and said a strong federation and strong provinces would guarantee a strong and united Pakistan. He noted the sacrifices of the people of Khyber-Pakhtunkhwa in the war on terror, regretting it had resurfaced. He also hoped the 11th NFC would boost the share of KP in view of the merger of the erstwhile tribal districts into the province and urged other provinces to support him in this regard.
Punjab Finance Minister Mian Mujtaba Shujaur Rehman, while thanking the federal government, stressed on the need of consensus, adding it would require effort from all stakeholders. He emphasized that importance of equitable resource distribution and consistency of policies between the federal and provincial governments.
Balochistan Finance Minister Mir Shoaib Nosherwani said the chief minister had instructed him to work toward consensus, adding Balochistan believed in cooperation with the federation and all provinces.
The meeting included detailed presentations from all provinces as well as the federal government, outlining their respective fiscal positions and priorities. The center noted the fiscal challenges arising from the 7th NFC Award in 2010 and its continuation for more than 15 years. It said the dearth of funds hampered the country’s defense and development expenditure, compromising infrastructure development and social standards. This, the federal government stressed, financially weakened the center and the provinces as well.