7th NFC Award: ‘Centre deducts Rs87.87bn annually without AGP certification’

ISLAMABAD: Despite the passage of over 15 years since the 7th NFC Award was enacted, the federal government continues to deduct Rs 87.871 billion annually in collection charges on notional basis without the legally required certification from the Auditor-General of Pakistan (AGP), according to the Audit Report 2024–25.

Audit report on the accounts of federal government (civil) audit year 2024-25 cited Clause 2(a) of the Distribution of Revenues and grants in-aid order, 2010: that the net proceeds mean, in relation to any tax, duty or levy, the proceeds thereof reduced by the cost of collection as ascertained and certified by the AGP.

The management of the Finance Division distributed an amount of Rs 4.928 trillion as National Commission Award to the provinces and deducted Rs. 87.871 billion as one percent collection charges during 2023-24.

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Finance Division was deducting one percent as collection charges amounting to Rs87.871 billion on national basis and did not have actual amount of collection charges, which was against clause 2(a). No proof for ascertaining and certifying the collection charges from the AGP was produced to audit.

Sources within the Ministry of Finance admit that since the NFC Award was implemented in 2010, the issue of uncertified deductions has remained unresolved. “It’s been 15 years, yet the Finance Division has failed to obtain the AGP’s certification, and the Public Accounts Committee (PAC) has not taken decisive action to enforce compliance,” a senior official acknowledged.

The management replied that the Finance Division deducted one percent of the divisible pool of taxes as collection charges pursuant to the recommendation of the 7th NFC Award. The accounts of the Federation are submitted to the Auditor General of Pakistan for certification by the AGPR.

During certification of collection charges so determined by the Auditor General it would be adjusted accordingly. Furthermore, the NFC transfers for the fiscal year 2023-24 have already been reconciled with the provincial finance departments, AGPR sub offices and AG offices. The Provincial governments have no objection on this account.

The reply of the management is not tenable because collection charges need to be deducted after determination and certification of the AGP. Afterwards, the amount needs to be disbursed to the provinces, which was not done by the Finance Division.

Audit maintained that non-deduction of actual collection charges was irregular, besides, it was an essential requirement of the Order to get the collection charges determined and certified by the AGP.

Auditors flagged this deduction as irregular and unsupported, noting that no certified cost breakdown or approval from the AGP was provided for verification. Despite repeated observations in past audit cycles, this critical requirement remains unfulfilled.

The DAC in its meeting held on 13th January 2025, directed the Finance Division to take up the matter with the AGP for the purpose.

Audit recommended that necessary requirement of the Distribution of Revenues and Grants–in-aid Order, 2010 regarding certification and ascertainment of deduction charges by AGP, be complied with. Further, record of collection charges be provided to Audit for verification.

Copyright Business Recorder, 2025