Public Finance in Punjab

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Punjab, is the most developed and populous province of Pakistan with approximately 55% of the country’s total population. Lahore is the provincial capital and Punjab’s main cultural, historical, administrative and economic center.

An Overview

Capital Lahore
Largest City Lahore (6,658,393 people)
Government Type Province
Body Provincial Assembly
Governor Choudhry Muhammad Surver
Chief Minister Shahbaz Sharif
Total Area 205,344 sq km
Total Population 7,25,85,000
Density 353 Sq Km
Main Languages Urdu, English, Punjabi
Assembly Seats 371
Departments 38
Attached Department 27
Autonomous Bodies 136
Districts 36
Special Institutes 12
Tehsils /Town 127

The land of 5-rivers, population-wise the largest, and once known as the granary of east,  Punjab is the lifeline of Pakistan.

To the North of the Punjab is the Khyber Pakhtunkhwa Province and the federal capital area of Islamabad, to the North-East is Azad Kashmir, to its South-East is India (Indian Punjab & Rajasthan), to the South-West is the province of Sindh while to the West are Baluchistan and the Federally Administered Tribal Areas (FATA).

The province is predominantly on plain level; however, there are some hilly areas in the North-West and extreme South-West. There is also a plateau adjacent to the mountains known as the Potohar plateau and a desert belt in the South Eastern part known as Cholistan.

All the major rivers of the country namely Indus, Jhelum, Chanab, Ravi, & Sutlaj flow through this province. They originate from the Himalayas and pass from North-West to South-West. They are primeval in nature and the volume of water increases in the summer after the monsoon rains, resulting sometimes in floods.

Punjab is the most populous province of Pakistan. According to the 1998 census, the population of the province is 7,25,85,000. The population density is 353 persons per square kilometer as compared to the national figure of 164. It contains several major cities of the country: Lahore, Faisalabad, Rawalpindi, Multan and Gujranwala.

Economic Strength

Punjab economy is mainly agricultural, although industry makes a substantial contribution. The province is playing a leading role in agricultural production. It contributes about 68% to the annual food grain production in the country. 51 million acres of land is cultivated and another 9.05 million acres are lying as cultivable waste in different parts of the province.

Cotton and rice are important crops. They are the cash crops that contribute substantially to the national exchequer. Attaining self-sufficiency in agriculture has shifted the focus of the strategies towards small and medium farming, stress on barani areas, farms-to-market roads, electrification for tube-wells and control of water logging and salinity.

Punjab has also more than 48 thousand industrial units. The small and cottage industries are in abundance. There are 39,033 small and cottage industrial units. The number of textile units is 11,820. The ginning industries are 6,778. There are 6,355 units for processing of agricultural raw materials including food and feed industries.

Lahore and Gujranwala Divisions have the largest concentration of small light engineering units. The district of Sialkot excels in sports goods, surgical instruments and cutlery goods.

Punjab is also a mineral rich province with extensive mineral deposits of coal, rock-salt, dolomite, gypsum, silica-sand. The Punjab Mineral Development Corporation is running over a dozen economically viable projects.


The Government of the Punjab functions under the provisions of the Constitution of Pakistan (1973). The Province has a Provincial Assembly with 371 elected members, with 66 seats reserved for women and eight reserved for non-Muslims.

The Provincial Assembly of the Punjab is a unicameral legislature of elected representatives of the province of Punjab, which is located in Lahore, Pakistan. The Assembly was established under Article 106 of the Constitution of Pakistan

The Provincial Assembly elects the Chief Minister of the Province who forms a Cabinet of Ministers to look after various Departments. The Chief Minister is the Chief Executive of the Province. The Federal Government appoints a Governor as head of the Provincial Government.

The bureaucratic machinery of the province is headed by a Chief Secretary who coordinates and supervises functions of various Departments headed by Departmental Secretaries.

All the Secretaries are assisted by Additional Secretaries, Deputy Secretaries, Section Officers and other staff. The Departments may have attached Departments and autonomous or semi-autonomous bodies to look after various functions. The Province is divided into 36 districts.

Financial Management System

The Government budgeting is based on the principle of equitable distribution of resources among its citizens through the tools of various fiscal measures. Government first outlines its expenditure programmes and then follows planning for revenue generation. It is a well set rule in Public Finance that an increase in expenditure at a constant tax rate or a decrease in the tax rate at no change in expenditures will always lead to budget deficits. In case of a reverse scenario, a surplus  budget  will  appear,  while,  balance  budget  is  an  equilibrium  between receipts  and  expenditures.  The need for any one of these three options depends upon the overall economy of the country or on the will of the government.

In the context of fiscal federalism, provincial budget is largely a function of Federal Divisible Pool receipts. In this arrangement, all major and robust taxes are  classified  under  Federal  Divisible  Pool  taxes  since  provinces  are  largely dependent on Federal Divisible Pool receipts.

The most important component of provincial budgetary receipts is transfers from the Federal Government every year. These represent the share of the provinces in direct and indirect taxes and duties levied and collected by the Federal Government. Taxes and duties which are subject to distribution between the Federal Government and the Provinces include:

  • Tax on Income
  • Wealth Tax
  • Capita Value Tax
  • Tax on the Sale or Purchase of the Goods
  • Export Duty on Cotton
  • Customs Duty
  • Federal Excise Duty (Excluding excise duty on Gas Charged at Well head)
  • Any other tax which may be levied by the Federal Government

The revenue distribution between the Federation and Provinces is made under the National Finance Commission Awards. National Finance Commission consisting of the Minister of Finance of the Federal Government and Ministers of Finance of the various Provincial Governments. This commission allocates a share for each Province from the divisible pool of taxes collected. In addition, the Provincial Governments receive grants from the Federal Government. The basis of distribution currently enforced is governed by 7th NFC.

Under the 7th National Finance Commission Award, the percentage share of the provinces in the Divisible Pool is 57.5% w.e.f. FY 2011-12. Under the 7th NFC Award, the Divisible Pool now comprises Taxes on Income, Customs Duties, Sales Tax, Federal Excise excluding Excise Duty on Gas charged at well head, and any other tax levied by the Federal Government. With the exception of Federal Excise Duty on gas, the taxes listed above are distributed between the provinces and the Federal Government in the ratios given below:

Vertical Distribution of Resources
Provincial Share Federal Share
57.50% 42.50%
The provincial share is divided amongst the provinces in the ratios given below.  This share was decided on the basis of a multiple criteria based on population, inverse population density, revenue and poverty.
Horizontal Distribution of Resources
Punjab Sindh Khyber Pakhtunkhwa Balochistan
51.74% 24.55% 14.62% 9.09%
As regards expenditure, each Provincial Government incurs outlays according to the commitments made in individual budget estimates. Because of commonality in the financial provisions of the Federal and Provincial Governments, procedures and practice in budgeting and accounting are similar and vary only in detail.