The federal government is set to transfer Rs8.8 trillion to the four provinces under the National Finance Commission (NFC) award in the upcoming fiscal year 2026-27. This marks an increase of Rs1.2 trillion compared to the revised Rs7.6 trillion transferred in the outgoing fiscal year.
Increase in Provincial Share
The rise in the provincial share is attributed to the federal government's decision to enhance the tax collection target for the Federal Board of Revenue (FBR). The government has set an ambitious Rs15.264 trillion tax collection target for the next financial year. The actual amount transferred to the provinces will depend on the FBR's performance in achieving this target.
Conditions and Agreements
Alongside the increased share, the federal government has asked the provinces to present a surplus budget of Rs1.794 trillion. In a new agreement, three provinces—excluding Balochistan—have agreed to freeze their development expenses and provide Rs920 billion as a grant to the cash-strapped federation. The federal government had initially demanded Rs1.2 trillion from the provinces to meet additional funding requirements for defense and water sector projects.
Punjab has reduced its development budget by Rs701 billion, Sindh by Rs110 billion, and Khyber-Pakhtunkhwa (K-P) by Rs109 billion at the federal government's request.
Distribution Under 7th NFC Award
Under the 7th NFC Award, the Federal Divisible Pool is distributed with 57.5 percent allocated to the provinces and the remainder to the Centre. The provincial shares are as follows: Punjab receives 51.74 percent, Sindh 24.55 percent, Khyber Pakhtunkhwa 14.62 percent, and Balochistan 9.09 percent.
Provincial Breakdown
- Punjab: Rs4.402 trillion in FY2026-27, up from Rs3.745 trillion revised in the current fiscal year.
- Sindh: Rs2.207 trillion in FY2026-27, compared to Rs1.879 trillion revised in the outgoing year.
- Khyber-Pakhtunkhwa: Rs1.443 trillion, against Rs1.231 trillion revised in the ongoing year. KP also receives an additional one percent under the war on terror allocation.
- Balochistan: Rs795.134 billion in the next fiscal year, compared to Rs735.919 billion revised in the previous year.
Divisible Pool and Straight Transfers
The total transfer of Rs8.848 trillion to the provinces includes Rs8.635 trillion from the divisible pool (up from Rs7.401 trillion in the outgoing year) and Rs213.277 billion as straight transfers (up from Rs190.495 billion).
Divisible Pool Taxes Breakdown
- Income tax: Rs4.246 trillion
- Capital value tax: Rs15.243 billion
- Sales tax on goods: Rs2.815 trillion
- Federal excise duty: Rs611.699 billion
- Customs duty: Rs946.778 billion
Straight Transfers Breakdown
- Gas development surcharge: Rs69.394 billion
- Royalty on natural gas: Rs93.4 billion
- Royalty on crude oil: Rs44.595 billion
- Excise duty on natural gas: Rs6.189 billion
These figures are part of the budget documents for the fiscal year 2026-27.
