NFC award

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The NFC Award or National Finance Commission Award, is the distribution of financial resources among the provinces of Pakistan by the federal government on annual basis. Certain types of taxes collected in each province are pooled, then redistributed according to the NFC formula. What taxes to include in the distribution pool and the distribution formula is a subject of debate. Pakistan has had five NFC awards formulas. The Fifth NFC Award, adopted in 1997, was supposed to be valid for five years but failure to reach agreement on a sixth has meant that the fifth is still in operation.

Taxes included in the pool are (1) income taxes, (2) general sales tax, (3) wealth taxes, (4) capital gains taxes, and (5) custom duties. The inclusion of custom duties started with the 1997 award. In the 1991 award custom duties had gone exclusively to the federal government. Collections for the Worker Welfare Fund remain in the province where they are collected. Resource royalty is collected by the federal government and distributed to the provinces based on independent agreements.

In principle the 1997 award specifies that 63% of the pooled taxes will go to the federal government and 37% will be distributed to the provinces. This was a major change from the 20% federal and 80% provincial split under the 1991 award. However the inclusion of custom duties that had previously been 100% federal required an increase in the federal share.

Most Tax Receipts are collected from Punjab and...
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