Article 160: A constitutional guarantee, not a fiscal convenience

Fiscal federalism cannot be re-engineered by economic theory as suggested by World Bank in its report, we must not ignore the constitutional compact that binds Pakistan together

By Huzaima Bukhari

The 18th Constitutional Amendment of 2010 added Article 160(3A), which specifies that “the share of the Provinces in each Award of NFC shall not be less than the share given to the provinces in the previous Award,” effectively protecting provincial revenue shares against any future reductions—Strengthening Fiscal Federalism in Pakistan, World Bank (2026)

Apropos to yesterday’s article [Fiscal federalism is not an issue!] on World Bank’s above cited report, every few years Pakistan’s fiscal crisis revives an old argument. The federation is short of money, debt has become unsustainable, interest payments consume an ever-larger share of public revenues, and therefore the Seventh National Finance Commission (NFC) Award should be revisited because the provinces allegedly receive “too much.”

The argument appears economically attractive. Constitutionally, however, it collapses. The World Bank’s above-mentioned report is among the latest contributions to this debate. It contains valuable analysis on provincial taxation, public financial management, local governments and institutional coordination. Nevertheless, its discussion of vertical fiscal imbalance ultimately rests upon an assumption that financial arrangements can be redesigned primarily through public finance principles.

That assumption overlooks the central reality of Pakistan’s federal structure. NFC is not merely an economic mechanism. It is a constitutional institution. Nor is Article 160 of the Constitution of Islamic Republic of Pakistan merely an accounting formula. It is part of the constitutional framework that preserves the federation itself. This distinction changes the entire debate.

Fiscal federalism is often discussed as though governments first determine economic efficiency and later distribute constitutional powers accordingly. Pakistan’s constitutional history followed the opposite path.

The Constitution of 1973 emerged after the traumatic dismemberment of the country. The framers understood that excessive political and financial centralisation had contributed significantly to alienation among the federating units. The Constitution therefore deliberately established a federal rather than unitary structure in which legislative authority, executive responsibility and financial resources were to be distributed among the federation and the provinces. The Constitution (Eighteenth Amendment) Act, 2010 [18th Amendment] did not invent provincial autonomy. It restored it.

Abolition of the Concurrent Legislative List represented completion of a constitutional journey that had remained unfinished for decades. Education, health, agriculture, labour, culture, social welfare and numerous other functions ceased to belong to Islamabad simply because they had historically been administered from the centre. Parliament decided that they constitutionally belonged to the provinces.

Financial arrangements necessarily followed constitutional responsibility. That is precisely why Article 160 acquired extraordinary constitutional significance. Before the 18th Amendment, successive federal governments frequently delayed NFC Awards and altered fiscal arrangements through political bargaining. Provinces repeatedly complained that financial uncertainty undermined both constitutional autonomy and development planning.

Parliament responded by inserting Article 160(3A). Its language is unequivocal. The share of the provinces in each NFC Award shall not be less than the share given to the provinces in the previous Award. This provision is unique because it constitutionalises a minimum fiscal guarantee. The practical consequence is profound.

Federal fiscal stress, however serious, cannot by itself justify reducing provincial shares. Constitutions exist precisely to prevent temporary financial or political pressures from overriding permanent constitutional commitments. The present debate therefore proceeds from a false premise. The issue is not whether Islamabad requires more money.

Every government would prefer larger revenues. The constitutional question is whether fiscal necessity permits departure from constitutional guarantees. The answer is self-evidently no. No constitutional democracy permits executive financial difficulties to amend the Constitution indirectly. If Article 160(3A) is considered inconvenient today, the constitutional route remains available. It must first be amended by Parliament through the procedure prescribed in Article 239 of the Constitution.

Economic arguments cannot silently accomplish what constitutional amendment alone can achieve. The debate becomes even weaker when viewed alongside the broader constitutional framework. Article 160 cannot be read in isolation. The Constitution created an integrated structure of cooperative federalism.

Article 153 and Article 154 deal with the Council of Common Interests (CCI) as the principal forum for resolving federal-provincial questions concerning subjects placed in the Federal Legislative List Part II. The CCI is not an advisory committee but a constitutional institution through which cooperative federalism operates.

Article 156 establishes the National Economic Council (NEC), ensuring that national economic planning itself becomes a shared constitutional responsibility rather than an exclusive federal function. Article 161 protects provincial rights over royalties, gas development surcharge and hydel profits generated from provincial resources. Article 167 regulates provincial borrowing while preserving provincial financial identity. Article 172(3) recognises provincial ownership in mineral oil and natural gas jointly with the federation.

Taken together, the above provisions demonstrate that Pakistan’s Constitution deliberately disperses financial authority. They were not drafted independently. They reinforce one another. Weakening one inevitably weakens the entire constitutional design. Ironically, those who advocate reducing provincial shares seldom ask the more important constitutional question.

Has the federation itself fully implemented devolution? The answer is clearly no. Even after the 18th Amendment, numerous federal ministries continue operating in constitutionally devolved sectors. Federal expenditure continues on subjects constitutionally assigned elsewhere.

Coordination has frequently become administration. Policy oversight has often become direct execution. Institutional duplication remains widespread. The constitutional imbalance therefore lies not in excessive provincial autonomy but in incomplete federal withdrawal from devolved functions. No serious discussion of fiscal imbalance can ignore this reality.

The World Bank itself recognises that the federal government continues operating in constitutionally devolved areas, thereby blurring accountability and creating duplication. It also notes that federal expenditure failed to adjust commensurately after devolution. This admission substantially weakens the report’s own conclusions.

Before suggesting changes in financial distribution, constitutional compliance requires the federation to withdraw from functions no longer assigned to it. Only then can genuine expenditure can be measured.

Another constitutional dimension deserves much greater attention. Over the past decade, the federation has increasingly relied upon revenues lying outside the divisible pool. Petroleum levy represents perhaps the clearest example. Collections have grown dramatically while remaining entirely outside NFC distribution. The constitutional consequence is significant.

Even without altering Article 160, increasing reliance upon non-divisible revenues gradually changes the financial balance originally envisaged by the Constitution. This question receives surprisingly little attention despite its obvious implications for fiscal federalism.

The future debate should therefore move in a different direction. Pakistan certainly requires another NFC Award. It requires harmonisation of provincial taxation. Agricultural income tax must finally become meaningful. Urban immovable property taxation requires comprehensive reform.

Provincial Finance Commissions must become regular constitutional institutions rather than occasional political exercises. Article 140A regarding local governments requires genuine implementation. The Council of Common Interests should function as originally intended. Most importantly, the federation must complete its own rightsizing by withdrawing from devolved subjects while concentrating upon genuinely national functions.

These reforms strengthen fiscal federalism. None requires weakening constitutional guarantees. The Constitution does not treat provinces as administrative departments financed at the pleasure of Islamabad. It treats them as constituent units of the federation whose financial autonomy is protected through constitutional guarantees negotiated after decades of political conflict. That distinction should never be forgotten.

Economic theories evolve. Fiscal models change. International institutions revise recommendations. Constitutions endure because they embody political settlements that transcend temporary financial expediency. Pakistan’s fiscal crisis did not arise because Article 160 became too generous. It arose because governments repeatedly postponed structural reforms, expanded debt, retained overlapping bureaucracies, relied increasingly upon non-divisible revenues and confused centralisation with national unity.

The answer therefore is not constitutional retreat. It is constitutional fidelity. The federation will become stronger not by reclaiming provincial resources but by faithfully implementing every institution, every responsibility and every financial safeguard that the Constitution itself prescribes. For Article 160 is not merely a formula for sharing taxes. It is one of the constitutional promises upon which Pakistan’s federal compact ultimately rests.

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Huzaima Bukhari, lawyer and author, has been an Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Senior Visiting Fellow of Pakistan Institute of Development Economics (PIDE)

Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.