Islamabad (September 05, 2018): Finance Minister Asad Umar has written a letter to provincial Chief Ministers for reconstitution of National Finance Commission.
The letter states that announcing National Finance Award after every five years is a constitutional obligation.
An official notification regarding constitution of the NFC will be issued as the provinces nominate their members for the commission.
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What is NFC Award:
The NFC Award is enacted through mathematical formulation between federal government and provincial governments. The NFC generalizes the five kinds of taxation, including the income taxes, sales tax, wealth taxes, capital gains taxes, and custom duties taxes.
The program is constituted under President of Pakistan who coordinated and supervise the studies and calculations conducted by financial specialists, economists, statisticians and mathematicians.
In 1997, changes in NFC formulation was carried out by Prime Minister Nawaz Sharif after including the custom duties taxes with the award.[8] Before 1991, the custom duties taxes revenue had been awarded to federal government while the revenue of Worker Welfare Fund (WWF) remain in the four provinces where they are collected.
The principality of 1991 NFC Award specifies that 63.12% of collected revenue of taxes were directed to the federal government and 37% distributed to the four provinces. Prime Minister Sharif was widely given credited for declaring a consensus on formulating the 7th NFC Award with some positive recommendations.
Earlier in 1991, the financial resources were vertically distributed at a fixed ratio of 20:80 among federal and provincial governments.
In 2009, the factor of poverty was inserted in determining the NFC Award.
Majority of the taxation and revenues are collected from Punjab and Sindh provinces of Pakistan. Almost all custom duties are collected at the Port of Karachi. Based on the formula determined in 1997, the taxation revenue collected from four provinces are: 65% of taxation revenue are collected from Sindh; the 25% taxation revenue from comes from the Punjab; 7.01% of taxation revenue collections are collected from Khyber-Pakhtunkhwa; lastly only 3.09% of taxation are collected from the largest province, Balochistan province.
Due to a constitutional obligation, the NFC Award can not be announced if the four provinces have failed to develop consensus. Minor changes in NFC formulations were carried out by Finance minister Shaukat Aziz in 2001, allocating ~50% of revenue to the four provinces against the prevailing formula of 62.89% as of 1995 NFC calculations. In 2005, President Pervez Musharraf finalizes the formula and enacted the award under the NFC program by the ratio of 52:48 among federal government and provincial governments.
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