FPSC (Federal Public Service Commission) · CSS (Central Superior Services)
National Finance Commission (NFC) Award
The Federal Structure
· Pakistan Studies/Affairs
50 MCQs
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1
Which article of the 1973 Constitution of Pakistan mandates the setting up of the National Finance Commission (NFC)?
Answer:
Article 160
Article 160 of the Constitution requires the President to constitute a National Finance Commission at intervals not exceeding five years. This body is responsible for recommending the distribution of revenues between the federal government and the provinces, ensuring a balanced fiscal federation.
2
Who is the ex-officio Chairman of the National Finance Commission (NFC)?
Answer:
The Federal Minister of Finance
The NFC is chaired by the Federal Finance Minister. Its members include the Finance Ministers of the four provinces and other members appointed by the President in consultation with the provincial governors to ensure all federating units have a voice in resource distribution.
3
In the context of the NFC, what does the 'Divisible Pool' refer to?
Answer:
The set of taxes collected by the Center to be shared with Provinces
The Divisible Pool consists of specific taxes collected by the federal government, such as income tax, sales tax, and customs duties. These net proceeds are shared between the federal and provincial governments based on the formula agreed upon in the NFC Award.
4
What is the primary difference between 'Vertical' and 'Horizontal' distribution in an NFC Award?
Answer:
Vertical is the share between Center and Provinces; Horizontal is the share among the four provinces
Vertical distribution determines the percentage of the divisible pool kept by the federal government versus the total given to the four provinces. Horizontal distribution determines how that total provincial share is divided among Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan.
5
The 7th NFC Award (2010) is considered 'historic' primarily because it shifted from a single-criterion formula to a multi-criteria formula. What was the only criterion before 2010?
Answer:
Population
Prior to the 7th NFC Award in 2010, the horizontal distribution of resources among the provinces was based solely on population. This was often criticized by smaller provinces as it favored Punjab, the most populous province, and ignored issues like poverty or area-related costs.
6
Which constitutional amendment added Article 160(3A), ensuring that the share of provinces in a new NFC Award cannot be less than the previous one?
Answer:
18th Amendment
The 18th Amendment (2010) inserted Clause 3A into Article 160. It provides a constitutional guarantee that the share of the provinces in any future NFC Award shall not be less than the share given to the provinces in the previous Award (which currently stands at 57.5%).
7
What is the weightage of 'Population' in the horizontal distribution formula of the current 7th NFC Award?
Answer:
82%
In the 7th NFC Award, the weightage of population was reduced from 100% to 82% for the first time. The remaining 18% was distributed among other factors like poverty, revenue collection, and inverse population density to ensure a fairer distribution.
8
Under the 7th NFC Award, what percentage is allocated for the 'Poverty and Backwardness' criterion?
Answer:
10.3%
To help less developed regions, 10.3% of the provincial share is distributed based on 'Poverty and Backwardness.' This criterion primarily benefits provinces like Balochistan and Khyber Pakhtunkhwa, which have higher poverty levels compared to urban centers in Punjab or Sindh.
9
Which province benefits the most from the 'Inverse Population Density' criterion in the NFC formula?
Answer:
Balochistan
Inverse Population Density (weighted at 2.7%) favors provinces with large land areas but low population densities. Since Balochistan covers nearly 44% of Pakistan's land but has a small population, it receives a larger share under this criterion to cover the higher cost of infrastructure delivery.
10
What is the weightage given to 'Revenue Collection and Generation' in the 7th NFC Award?
Answer:
5.0%
A 5% weightage is given to revenue collection and generation. This recognizes the contribution of provinces that generate more taxes for the national divisible pool, primarily benefiting Sindh (due to Karachi) and Punjab.
11
Which province receives an additional 1% of the total divisible pool as a 'War on Terror' grant under the 7th NFC?
Answer:
Khyber Pakhtunkhwa
Recognizing that Khyber Pakhtunkhwa was the frontline province in the fight against terrorism and suffered massive infrastructure and economic losses, the 7th NFC Award allocated an additional 1% from the total divisible pool specifically to KP before the vertical split.
12
What is the current vertical share of the 'Provinces' in the divisible pool as per the 7th NFC Award?
Answer:
57.5%
The 7th NFC Award significantly increased the provincial share from roughly 47% to 57.5%. The federal government retains the remaining 42.5% to manage national expenses like defense, debt servicing, and federal administration.
13
Before the 1973 Constitution, which award governed the distribution of resources in Pakistan in 1951?
Answer:
The Raisman Award
The Raisman Award of 1951 was the first major fiscal arrangement in Pakistan. It was named after Sir Jeremy Raisman and laid the groundwork for sharing sales tax and income tax proceeds between the center and the then East and West Pakistan wings.
14
How often is the National Finance Commission supposed to be constituted by the President?
Answer:
Every 5 years
Article 160(1) states that the President shall constitute an NFC at intervals not exceeding five years. If a new award is not reached within five years, the existing award is typically extended through presidential orders until a consensus is achieved.
15
Which of the following is NOT a part of the 'Divisible Pool' of taxes?
Answer:
Petroleum Development Levy (PDL)
The PDL is currently treated as a federal non-tax revenue and is not part of the divisible pool shared with the provinces. This has often been a point of contention as provinces argue that such levies should be shared to increase their fiscal space.
16
Under the 7th NFC Award, what is the 'Horizontal Share' of Punjab?
Answer:
51.74%
Punjab's share in the provincial pool is 51.74%. Although it has more than 50% of the population, its share was voluntarily reduced during the 2010 negotiations to accommodate the needs of smaller provinces, facilitating the historic consensus.
17
What is the 'Horizontal Share' of Sindh in the 7th NFC Award?
Answer:
24.55%
Sindh is allocated 24.55% of the horizontal provincial pool. This is based on its population, revenue generation capacity (largely due to Karachi), and other multi-criteria factors defined in the 2010 Award.
18
What is the 'Horizontal Share' of Balochistan in the 7th NFC Award?
Answer:
9.09%
Balochistan receives 9.09% of the provincial pool. A unique feature of the 7th NFC was that Balochistan's share was based on its projected population and area, and the federal government agreed to pay Balochistan's share from its own portion if provincial collections fell short.
19
The term 'Straight Transfers' in Pakistan's fiscal system refers to:
Answer:
Royalties on gas and oil and excise duty paid directly to the provinces of origin
Straight Transfers are revenues like Royalties on Natural Gas, Surcharge on Natural Gas, and Royalty on Crude Oil. These are not part of the divisible pool; they are collected by the center and transferred directly to the province where the resource is located, minus a small collection fee.
20
Which body monitors the implementation of the NFC Award twice a year?
Answer:
The Federal Ministry of Finance
The Federal Finance Ministry is required to present a biannual monitoring report on the implementation of the NFC Award to the National Assembly and Provincial Assemblies. This ensures transparency in how the funds are being collected and transferred.
