Allocation of Records from the Federal Tax Pool to Provinces
Official budget documents and the framework established by the National Finance Commission (NFC) Award indicate that provinces will receive a historic Rs8.2 trillion from the federal divisible pool in fiscal year 2025–2026.
President’s Order No. 5 of 2010, as revised in 2015, serves as the foundation for the allocation of funds. According to this arrangement, the federal government keeps 42.5% of net revenues from major federal taxes, such as income tax, sales tax (excluding services), federal excise duty, and customs duties, while the provinces receive 57.5%.
Breakdown of NFC Formula and Province-Wise Shares
Four primary indicators are used in the allocation formula:
- Population (82%) — the main basis of distribution
- Poverty and backwardness (10.3%) — aimed at aiding underdeveloped regions
- Revenue generation (5%) — to encourage provinces to improve local collections
- Inverse population density (2.7%) — to support less densely populated areas
Following this formula, the provincial shares in the divisible pool are:
- Punjab: 51.74%
- Sindh: 24.55%
- Khyber Pakhtunkhwa (KP): 14.62%, with an additional 1% of the total pool allocated to KP to support war on terror efforts
- Balochistan: 9.09%
Based on these percentages, the projected allocations for FY 2025-26 are:
- Punjab: Rs4.07 trillion
- Sindh: Rs2.04 trillion, which includes direct transfers and a special grant of Rs53.9 billion (0.66% of the pool) to replace the cancelled petrol and zilla taxes.
- Khyber Pakhtunkhwa: Rs1.34 trillion, inclusive of straight transfers and Rs79.885 million from the war on terror allocation
- Balochistan: Rs743 billion, which includes its share plus the highest royalty and surcharge benefits
There is a noticeable increase in these budget estimates. Transfers have increased over the previous year’s revised figures. Stronger federal tax collections are reflected in this. It also indicates that the provinces are receiving more funding.
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