Latest news with #7thNFCAward
Business Recorder
24-06-2025
- Business
- Business Recorder
Towards a climate-informed NFC Award
EDITORIAL: Planning Minister Ahsan Iqbal's recent announcement that the federal government is contemplating a revision to the criteria for the National Finance Commission (NFC) Award to better reflect the country's ecological and environmental realities deserves careful consideration. It signals a growing recognition of the need for climate-aware fiscal frameworks that ensure more equitable resource distribution. Terming the current population-based formula — where 82 percent weightage is given to population and the rest to factors like poverty, revenue generation and inverse population density — as 'regressive', he indicated that the government will push for including climate adaptation and other social sector indicators as key criteria when the NFC convenes for a crucial meeting in August. This marks the latest signal of the Centre's intent to reduce the dominant role population plays in shaping the inter-provincial fiscal compact. In recent months, Finance Minister Muhammad Aurangzeb has also called for a 'fundamental rethink' of the population-heavy NFC formula. And given the trajectory of the economy since the 7th NFC Award came into effect in 2009, the case for revisiting the fiscal distribution framework looks increasingly compelling. By disproportionately prioritising population, the NFC formula has long overlooked structural inequities among the provinces in terms of development indicators, infrastructure and security needs. Worse still, it has created a perverse incentive for unchecked population growth, placing unsustainable pressure on economic, environmental and social resources, while also deepening the climate crisis. A runaway annual population growth rate of 2.55 percent rapidly depleting the country's already strained resources, and a worsening climate crisis battering the economy and upending millions of lives, in fact, together form the twin existential threats confronting us. Given this, it is encouraging that the government is not just reconsidering the NFC framework, it has also directed a sizeable share of the upcoming fiscal year's budget towards climate-resilient development. However, the budget document is marred by policy contradictions and a lack of clarity on how it intends to prioritise climate-related goals. A notable feature of the budget is the rollout of the IMF-backed Climate Budget Tagging tool, aimed at identifying and categorising Public Sector Development Programme expenditures according to their relevance to climate objectives. Under this framework, projects are categorised under either adaptation, mitigation, or supporting activities. To this end, the government has allocated Rs85.43 billion for adaptation — measures aimed at preparing for climate change impacts, like floods — Rs603 billion for mitigation, which focuses on reducing emissions, and Rs28.33 billion for supporting functions, including research and institutional development. While the largest share of the funding has gone to mitigation, the finance minister has repeatedly stressed that our most pressing challenge remains adaptation – an entirely valid assertion, given that this category encompasses a wide range of critical initiatives like flood protection, water resource management and climate-resilient agriculture. Yet, the funds set aside for adaptation remain disproportionately small. There seems to be little focus on developing new drought-resistant crop varieties, retrofitting aging infrastructure to protect against extreme weather, or establishing robust early warning systems. Furthermore, contradictions within the mitigation framework are also evident: a 2.5 percent carbon levy has been imposed on the fossil fuel industry, but any benefit accrued here will just be undermined by the simultaneous duties introduced on solar imports. Crucially, funding for the climate change ministry has been slashed from Rs3.5 billion to Rs2.7 billion, hindering climate research and capacity building. Given this, policymakers must recognise that a climate-informed revision of the NFC Award, while welcome, must be matched by greater coherence in the national climate agenda. The budget reflects troubling contradictions and lack of clear direction, particularly in its neglect of urgently needed adaptation efforts. Unless these gaps are addressed, any shift in fiscal thinking will struggle to deliver meaningful results. Copyright Business Recorder, 2025
Business Recorder
23-05-2025
- Business
- Business Recorder
Economist urges depoliticisation of NFC award, proposes new formula
The federal government should depoliticise the National Finance Commission (NFC) award by appointing technocrats rather than politicians and revising the distribution formula, said noted economist Dr Ashfaque Hassan Khan. The economist made these recommendations in his report 'NFC Award and Population: Has It Distorted Pakistan's Population?' Currently, the President of Pakistan constitutes a Finance Commission for five five-year terms under Article 180 of the Constitution. The President may constitute the Commission consisting of non-political figures,' the report states. The proposed Commission will have a secretariat with professional and administrative staff to provide research and secretarial assistance to the chairperson and members of the Commission. Weightage of population in NFC 'Once the Commission is constituted by the President, the government may provide the Terms of Reference (TOR) to the Finance Commission at the beginning of the Commission, based on the priorities of the government,' read the report. Moreover, the Commission will have the authority to change the parameters as well as their weights for resource distribution between the federal and provincial governments and among the provinces to complete their assignments according to the TOR provided by the government, it added. Dr. Ashfaque's report highlights several flaws in the current NFC setup, particularly criticising the overreliance on population as the dominant criterion for resource allocation. The report noted that from 1974 to 2009, population was the sole criterion, i.e. 100%, used to allocate funds among provinces. However, the 7th NFC Award of 2010 introduced multiple criteria including, poverty/backwardness, revenue collection and inverse population density, but population remained the dominant indicator with 82% weight. NFC award major reason behind govt's inability to go after untaxed sectors: economist The report proposed that the weight of the population is reduced to 25%, with 15% weightage given to the population of the 1998 census and 10% to the population of the 2023 census of each province. Dr Ashfaque suggested using the income gap as the key indicator for the NFC award, with a 30% weight. 'The larger the income gap of the province with the richest province, the more resources are provided to the provinces to minimise the gap.'
Business Recorder
20-05-2025
- Business
- Business Recorder
Pakistan's tax-to-GDP ratio declines in FY2024–25, says think tank
ISLAMABAD: An economic thinktank has claimed that the tax-to-gross domestic product (GDP) ratio of the Federal Board of Revenue (FBR) has declined from 11.6 percent in 2019–20 to 10.4 percent in 2024–25. According to a report - Decoding Pakistan's Budget Dynamics - issued by Economic Policy and Business Development on Monday, the 15–year period shows a significant increase in nominal GDP, with the most dramatic acceleration occurring in the 2019-20 to 2024–25 period. The tax-to-GDP ratio shows a modest improvement through 2019–20 but declined by 2020–25, highlighting persistent challenges in revenue mobilisation despite repeated reform efforts. In 2019–20, the tax-to-GDP ratio remained 13.2 percent, the report said. The revenue composition shows differential growth rates across the 15-year period. Tax revenues grew steadily through fiscal year 2009–10 to 2019–20 and accelerated in the 2019–20 to 2024–25 period. Direct taxes grew faster than indirect taxes over the full period, indicating a gradual shift toward income–based taxation. Non-tax revenue grew modestly from 2019–20 to 2024–25 but surged dramatically in the following five years, growing at an implied annual rate of over 40 per cent between2019–20 to 2024–25 period. Tax component analysis revealed that all major tax heads grew significantly over the 15-year period. Customs duties saw particularly rapid growth from 2014–15 to 2019–20, growing from Rs281 billion to Rs1,000 billion. The petroleum levy, while growing modestly in the earlier periods, accelerated extraordinarily in the 2019–20 to 2024–25 period, becoming a major revenue source by 2024–25. Income tax is the largest contributor to tax revenues, amounting to Rs5,454 billion in 2024–25. Provincial share in federal revenues increased substantially over the 15-year period, growing at an average annual rate of 17.7 per cent, exceeding the growth rate of the overall budget. As a percentage of gross revenue, provincial share increased from 32.6 per cent in 2009–10 to a peak of 48.5 per cent in 2019–20, before moderating to 41.8 per cent by 2024–25. The increase from 2009–10 to 2014–15 reflects the impact of the 7th NFC Award, which raised the provincial share of the divisible pool from 43.75 per cent to 57.5 per cent. The report concluded that despite tax revenues growing by 768 percent, the tax-to-GDP ratio remained largely stagnant around 10–11 per cent. The increasing reliance on SBP profits (1,567 per cent growth) indicates dangerous dependence on central bank financing rather than sustainable tax measures, it added. Copyright Business Recorder, 2025
Business Recorder
20-05-2025
- Business
- Business Recorder
Tax-to-GDP ratio declines in FY2024–25, says think tank
ISLAMABAD: An economic thinktank has claimed that the tax-to-gross domestic product (GDP) ratio of the Federal Board of Revenue (FBR) has declined from 11.6 percent in 2019–20 to 10.4 percent in 2024–25. According to a report - Decoding Pakistan's Budget Dynamics - issued by Economic Policy and Business Development on Monday, the 15–year period shows a significant increase in nominal GDP, with the most dramatic acceleration occurring in the 2019-20 to 2024–25 period. The tax-to-GDP ratio shows a modest improvement through 2019–20 but declined by 2020–25, highlighting persistent challenges in revenue mobilisation despite repeated reform efforts. In 2019–20, the tax-to-GDP ratio remained 13.2 percent, the report said. The revenue composition shows differential growth rates across the 15-year period. Tax revenues grew steadily through fiscal year 2009–10 to 2019–20 and accelerated in the 2019–20 to 2024–25 period. Direct taxes grew faster than indirect taxes over the full period, indicating a gradual shift toward income–based taxation. Non-tax revenue grew modestly from 2019–20 to 2024–25 but surged dramatically in the following five years, growing at an implied annual rate of over 40 per cent between2019–20 to 2024–25 period. Tax component analysis revealed that all major tax heads grew significantly over the 15-year period. Customs duties saw particularly rapid growth from 2014–15 to 2019–20, growing from Rs281 billion to Rs1,000 billion. The petroleum levy, while growing modestly in the earlier periods, accelerated extraordinarily in the 2019–20 to 2024–25 period, becoming a major revenue source by 2024–25. Income tax is the largest contributor to tax revenues, amounting to Rs5,454 billion in 2024–25. Provincial share in federal revenues increased substantially over the 15-year period, growing at an average annual rate of 17.7 per cent, exceeding the growth rate of the overall budget. As a percentage of gross revenue, provincial share increased from 32.6 per cent in 2009–10 to a peak of 48.5 per cent in 2019–20, before moderating to 41.8 per cent by 2024–25. The increase from 2009–10 to 2014–15 reflects the impact of the 7th NFC Award, which raised the provincial share of the divisible pool from 43.75 per cent to 57.5 per cent. The report concluded that despite tax revenues growing by 768 percent, the tax-to-GDP ratio remained largely stagnant around 10–11 per cent. The increasing reliance on SBP profits (1,567 per cent growth) indicates dangerous dependence on central bank financing rather than sustainable tax measures, it added. Copyright Business Recorder, 2025
