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Abstract [Being a Federation, the revenues in Pakistan are shared by the Federal and Provincial governments. A major part of these revenues are collected by the Federal government and thereafter distributed among the Centre and the Provinces on the basis of agreed criteria formulated by the National Finance Commissions set up from time to time. The Constitution of the Islamic Republic of Pakistan 1973 (Article 160) envisages that the President shall constitute, at intervals not exceeding five years, a National Finance Commission (NFC) comprising the Federal and Provincial Ministers of Finance and other nominated members to make recommendations on distribution of revenues between Federal and Provincial governments, Federal grant-in-aid to provinces and other matters referred to it. The Article also specifies the taxes that are assigned to the 'divisible pool'.
The division of revenues between the Federal and Provincial governments has always been a sensitive issue - the main areas of contention being (1) taxes to be included in the divisible pool, (ii) Federal and Provincial share in the pool, and (iii) basis of distribution of the provinces' share among the provinces. These matters often remained unresolved by the NFCs in the past, compelling the government to adopt ad hoc measures. The Seventh Commission (2009) turns out to be one of the few that have made unanimous recommendations with far reaching financial implications for the Federal and Provincial governments. This paper discusses the implications of the NFC Awards in historical and comparative perspectives. - Author] Introduction Though the criteria for distribution of revenues between the Federal and Provincial governments had undergone periodic adjustments, the unanimous agreement (commonly known as Award) of the Seventh National Finance Commission (NFC) on 31 December, 2009 can be considered as a landmark in Pakistan's financial history. While setting out larger resources for the provinces, the Award lays down new principle for distribution of revenues among provinces and resolves some outstanding issues such as payment from net proceeds of royalties and development surcharge to the provinces. It reduces the Federal government's share in the divisible revenue pool and places major portion of it in the hands of provinces. The basic criterion for distribution of revenues among provinces was also changed from population-based to four-point criteria, including population, backwardness, revenue collection/generation...