WITH the constitution of the 11th National Finance Commission, the debate around revenue sharing takes centre-stage. For years, the federal government has repeated that 57.5 per cent of federal revenues are allocated to provinces, building the narrative that it is cash-strapped. This argument, while politically convenient, is misleading. When one examines the full composition of federal revenues, it becomes evident that the federal government retains close to 60pc of total revenues. A growing share of this is collected outside the NFC’s divisible pool, particularly through the petroleum levy.

While politically expedient, relying on the petroleum levy and other surcharges as non-shareable revenue is deeply problematic. It bypasses the constitutional principles of the NFC, weakens the mechanism designed to ensure fair federal-provincial fiscal relations, and concentrates fiscal discretion in the hands of the federal executive. By creating a parallel pool of revenues untied to the NFC formula, the centre undermines transparency, and erodes trust in federalism. The narrative that provinces are draining the centre’s resources is false and distracts from structural issues in federal finances.

Another persistent fallacy is the proposal that provincial transfers should be tied to performance, often implying that the centre should oversee provincial outcomes. At first glance, such arguments may seem reasonable: if resources are allocated, accountability appears justified. However, this line of reasoning misunderstands Pakistan’s fiscal federalism. The NFC was designed solely as a mechanism for revenue sharing, not as a supervisory........

© Dawn