Provinces secure historic Rs8.2 trillion under NFC Award in FY2025-26 budget

In a major boost to provincial finances, the four federating units of Pakistan are projected to receive a record Rs8.2 trillion from the federal divisible tax pool in the upcoming fiscal year 2025-26, according to budget documents released by the National Finance Commission (NFC).

This allocation is governed by President’s Order No 5 of 2010 (amended in 2015) and marks a substantial increase from the revised estimates for FY2024-25.

Under the NFC formula, 57.5% of net federal tax revenues, including income tax, sales tax (excluding services), federal excise duty, and customs duties, will be distributed among the provinces. In comparison, the federal government retains 42.5%.

Provincial shares are determined by a fixed formula that incorporates four key indicators, including population (82%), poverty and backwardness (10.3%), revenue collection/generation (5%), and inverse population density (2.7%). 

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Based on these parameters, the distribution among provinces from the Rs8.2 trillion pool will look like this:

• Punjab would receive Rs4.07 trillion (51.74% share).
• Sindh Rs2.04 trillion (24.55% share), including Rs53.9 billion in compensation for the abolition of petrol and zilla taxes.
• Khyber Pakhtunkhwa would have Rs1.34 trillion (14.62% share), which includes its portion of straight transfers and an additional 1% of the entire divisible pool (Rs79.89 billion) for expenditures related to the war on terror.
• Balochistan will also receive Rs743 billion (9.09% share), the largest proportion of royalties and surcharges. 

The record transfers reflect both increased federal revenue collections and a continued commitment to resource devolution under the 18th Amendment and the NFC framework. 

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The funds are expected to significantly bolster provincial development programs and social sector spending, especially in less developed and conflict-affected regions.

Officials anticipated that the enhanced fiscal space would help provinces expand public services, address poverty, and invest in infrastructure and governance reforms, though challenges related to fiscal management and revenue generation at the provincial level remain.

Budget estimates for 2025-26 show notable increases in total transfers compared to the revised estimates for FY25.