Islamabad, Pakistan – Web Desk: The World Bank has recommended major reforms to Pakistan’s National Finance Commission (NFC) Award, urging the federal and provincial governments to jointly share the financial responsibility for debt servicing, social protection, infrastructure development, security and climate-related initiatives.
According to a newly released World Bank report on strengthening Pakistan’s fiscal federalism, both the federation and provinces should work together to finance key national priorities instead of placing the burden solely on the federal government.
The report also called for the effective implementation of agricultural income tax and a uniform property tax system across the country to broaden the tax base and improve revenue collection.
The World Bank recommended linking the NFC Award and additional fiscal transfers to measurable indicators such as performance, transparency, fiscal discipline and improved public service delivery.
According to the report, the 18th Constitutional Amendment and successive NFC Awards significantly increased provincial responsibilities and revenue shares. However, structural weaknesses in Pakistan’s fiscal framework continue to affect financial management and service delivery.
The report noted that despite fiscal decentralisation, federal expenditures have not declined. Provincial revenue increased from 4 percent to 6.5 percent of GDP between 2010 and 2024, while local governments’ share of public spending fell from nearly 10 percent to around 5 percent, limiting their capacity to provide essential services.
The World Bank further observed that nearly 80 percent of provincial surplus funds are consumed by recurring expenditures, including salaries and pensions, leaving limited fiscal space for development projects.
Highlighting tax reforms, the report stated that agriculture contributes more than 20 percent of Pakistan’s GDP, yet a significant portion of agricultural income remains outside the tax net. It urged authorities to ensure the effective enforcement of agricultural income tax laws.
The report also described Pakistan’s 9.9 percent tax-to-GDP ratio as insufficient and among the lowest in the region. It compared Pakistan with countries such as Ethiopia (10.2%), Indonesia (10.3%), Egypt and Mexico (12.6%), Vietnam (14.3%), India (16.8%), and Türkiye (17.5%).
The World Bank also called for a harmonised General Sales Tax (GST) system and broader tax reforms to strengthen Pakistan’s fiscal sustainability and improve public finances.
