AS Pakistan approaches the formulation of the 11th National Finance Commission (NFC) Award, a glaring constitutional omission continues to undermine the principles of equity and fiscal federalism: the capital city of Islamabad remains entirely excluded from the revenue-sharing mechanism of the NFC.
Despite its status as the administrative, political and diplomatic epicenter of the country—and home to over 2.3 million residents—Islamabad receives no share from the divisible pool of federal taxes. This systemic exclusion has left the Capital Development Authority (CDA) and Metropolitan Corporation Islamabad (MCI) financially paralyzed, relying on ad hoc allocations and unsustainable land-based revenue to fulfil core civic responsibilities.
The NFC Award, established under Article 160 of the Constitution, governs the distribution of federally collected taxes—such as income tax, sales tax on goods, federal excise duties and customs duties—between the federation and the provinces. The 7th NFC Award, promulgated through President’s Order No. 5 of 2010 (amended in 2015), remains in effect, allocating 57.5 percent of the net federal revenues to the provinces, while the Centre retains 42.5 percent. Provincial shares are determined by a multi-indicator formula: population (82%), poverty and backwardness (10.3%), revenue generation (5%) and inverse population density (2.7%).
Under this formula, Punjab receives 51.74%, Sindh 24.55%, Khyber Pakhtunkhwa 14.62% (plus an additional 1% for war-on-terror expenses) and Balochistan 9.09%. In fiscal year 2025–26, these percentages translate into substantial sums: Punjab will receive Rs4.07 trillion, Sindh Rs2.04 trillion, KP Rs1.34 trillion and Balochistan Rs743 billion. These allocations include adjustments for straight transfers, royalty shares and additional grants.
And yet, Islamabad—the face of the federation—receives nothing. The capital’s development and maintenance are instead funded through discretionary federal budget lines and CDA’s land sales. For FY2024–25, CDA has projected receipts of Rs91 billion, nearly 40 percent of which are contingent upon plot auctions and leases. This model is inherently fragile. It compromises long-term urban planning, incentivizes arbitrary asset liquidation and depletes public land holdings. Critical infrastructure projects such as the expansion of the Islamabad Expressway, the stalled mass transit systems and the long-awaited Ghazi Barotha water supply scheme remain either underfunded or indefinitely delayed.
Between 2016 and 2022, CDA transferred Rs43 billion to MCI to support essential services such as sanitation and street lighting. Shockingly, only Rs14 billion of this was reimbursed—forcing CDA to cover the deficit through its own revenues or federal bailouts. Meanwhile, Islamabad, unlike provincial capitals such as Lahore and Karachi, cannot access NFC-backed provincial transfers. Its development priorities are buried within the federal Public Sector Development Programme (PSDP), where they must compete with nationwide interests and shifting political calculations. This chronic underfunding is not merely a budgetary oversight—it is a structural injustice. The capital city does not exist in a vacuum. It serves not only its own residents but also accommodates thousands of federal government employees, diplomats, visiting dignitaries and international institutions. It is the symbolic and operational seat of the federation. To leave it fiscally orphaned is to weaken the federation itself. The remedy lies in Islamabad’s formal and permanent inclusion in the NFC framework. At least five percent of the total divisible pool should be earmarked for the Islamabad Capital Territory and other federally administered areas. This would not be unprecedented: Khyber Pakhtunkhwa receives an additional 1% share for security-related expenditures and a 3% share was previously proposed for the now-merged Federally Administered Tribal Areas (FATA). Such allocations reflect the principle of differentiated needs—a principle that surely applies to the capital city.
Time is of the essence. The 10th NFC will expire on July 23, 2025, without having produced an award. The last finalized NFC Award was issued in 2010. Since then, successive commissions have failed to achieve consensus and have operated under annual extensions. Recent IMF-recommended reforms toward a National Fiscal Pact have yielded only non-binding statements with no legal enforceability. As the Finance Division begins consultations for the 11th NFC and provinces submit their technical nominations, this moment offers a critical opportunity to redress Islamabad’s exclusion. A predictable, constitutionally embedded revenue stream is essential—not only for sound urban management, but for upholding the stature of the capital in the eyes of citizens and the world. A capital that serves the entire federation must not be left to fend for itself. Its future cannot hinge on bureaucratic discretion or the sale of its soil. The time has come to correct this foundational inequity. A capital without a share is a capital without a future. Let us ensure that Islamabad receives its due—within the NFC and within the nation’s vision for equitable growth.
—The writer is President, Islamabad Chamber of Commerce and Industry.
