Centre seeks Rs1.7tr cut in provincial NFC share

ISLAMABAD: Khyber-Pakhtunkhwa Finance Adviser Muzammil Aslam said on Wednesday that the federal government had asked for a reduction of Rs1.7 trillion in the provinces’ share under the National Finance Commission (NFC) Award, while also seeking provincial contributions towards fertiliser subsidies and additional tax collection.

Addressing a press conference in Islamabad, Aslam said the federation was dissatisfied with its current 42.5% share and wanted the NFC Award reviewed to withdraw Rs1.7 trillion from the federal divisible pool. He said that in a meeting held a few months ago under the chairmanship of Finance Minister Muhammad Aurangzeb on the divisible pool, the Centre proposed excluding customs duty and federal excise duty from the taxes and revenues shared between the federation and provinces. According to Aslam, the meeting ended without any agreement.

At present, provinces receive 57.5% of the divisible pool, with the remainder going to the federal government. For the current fiscal year, the provinces’ total share was set at Rs8.2 trillion on the basis of an FBR tax collection target of Rs14.13 trillion. Aslam said the Federal Board of Revenue was now expected to miss its target by more than Rs1 trillion, marking the second straight year of a shortfall of over Rs1 trillion.

The provincial share of Rs8.2 trillion was estimated on the basis of revenue distribution from taxes on income, wealth tax, capital value tax, sales tax on goods, customs duty, export duty on cotton and federal excise duty.

Provincial breakup and tax demands

Aslam said the federal government had asked Khyber-Pakhtunkhwa to contribute Rs200 billion, Punjab between Rs700 billion and Rs800 billion, Sindh Rs500 billion and Balochistan about Rs100 billion.

He also said the finance ministry, unable to prepare the budget within available fiscal space, had asked provinces to share the burden of fertiliser subsidies and impose Rs430 billion in additional taxes. According to Aslam, the finance minister told the provinces during a meeting that the federal government had no room left to levy further taxes and wanted the provinces to generate the extra amount instead. He said all provinces had responded that they too lacked the space to impose that level of additional taxation on the public.

Aslam said Khyber-Pakhtunkhwa had initially been asked to raise Rs35 billion in additional taxes. He told reporters that the province later received a letter raising that demand to Rs65 billion, which it had not accepted.

"The federation is not happy with its 42.5% share and has asked to review the NFC Award to take out Rs1.7 trillion from the federal divisible pool"

In the same press conference, Aslam said the federal government had also asked the Khyber-Pakhtunkhwa government to contribute Rs2 billion towards fertiliser subsidies, while Punjab had been asked for Rs55 billion.

Budget delay and coalition consultations

Aslam spoke on the day a report said one of the reasons behind the delay in announcing the new federal budget was the absence of consensus over resource distribution and expenditure allocations among coalition partners. The federal government had been planning to present the budget on Friday, but owing to the unresolved distribution issues, the announcement was postponed.

Separately, Deputy Prime Minister Ishaq Dar announced on Wednesday that the federal budget for 2026-27 would be tabled on June 10. According to a statement from the finance minister’s office cited by Dawn, Dar and Finance Minister Muhammad Aurangzeb met Pakistan Peoples Party leaders as part of routine pre-budget consultations. The discussions covered current and development expenditure priorities, including the Public Sector Development Programme, as well as fiscal sustainability, welfare measures, development initiatives and broader economic priorities.

Another meeting between the PML-N and PPP was expected later this week and that PPP Chairman Bilawal Bhutto-Zardari was likely to attend after returning from his election campaign in Gilgit-Baltistan ahead of the June 7 polls. PPP leaders told the newspaper they opposed new taxes and wanted a shift towards broadening the tax base instead of placing pressure on existing taxpayers. Finance Minister Aurangzeb told them the government would try its best to improve enforcement for widening the tax net.

The National Economic Council meeting, which had been scheduled for Wednesday to approve the next fiscal year’s development budget for the Centre and the four provinces along with macroeconomic targets, was also postponed.

Development allocations and IMF concerns

Aslam also criticised what he described as the neglect of Khyber-Pakhtunkhwa in federal development allocations. He said that out of the Rs1.126 trillion federal development budget, only Rs2.2 billion had been earmarked for projects in Khyber-Pakhtunkhwa, compared with Rs225 billion for Balochistan and Rs150 billion for Sindh.

Responding to a question, Aslam said there was a trust deficit between the finance ministry and the IMF, which he said had led to the rejection of even genuine proposals from the federal government. He added that in his meetings with the IMF, he had urged the lender to treat Khyber-Pakhtunkhwa and Balochistan differently because, according to him, both provinces had limited growth avenues and had been the hardest hit by terrorism.

On the issue of approval of the provincial budget, Khyber-Pakhtunkhwa Information Minister Shafiullah Jan said the chief minister had filed a petition seeking a meeting with PTI founder Imran Khan for finalisation of the budget. Jan said he hoped the meeting would be approved, but if it did not take place, the party’s senior leadership would make the decision.