PESHAWAR: Khyber Pakhtunkhwa Governor Faisal Karim Kundi chaired a high-level meeting on the province's failure to deduct federal withholding sales tax on purchases made by government departments.
The meeting brought together provincial Finance Adviser Muzammil Aslam, Chief Secretary Shahab Ali Shah, and officials from the Finance Department, the Khyber Pakhtunkhwa Revenue Authority, the Planning and Development Department, the Local Government Department, the Federal Board of Revenue (FBR) and the office of the Accountant General of Khyber Pakhtunkhwa.
Participants reviewed the legal and financial issues surrounding withholding sales tax deductions, along with current procedures and the obstacles preventing compliance. FBR officials briefed the governor on the status of withholding sales tax collection in the province.
FBR Chief Commissioner Muhammad Taqi Qureshi told the meeting that while the provincial government deducts its own taxes, it has not been deducting the federal withholding sales tax. He said the provincial government withholds tax from employees' salaries but does not deduct the required one-fifth tax from contractors.
Qureshi said his office had notified the Chief Secretary's office and provincial departments about the issue previously, but no practical action had followed.
FBR officials said provincial officials agree with the FBR's position in principle but have not been deducting the tax at the tendering stage.
Aslam said the province's Market Rate System already factors in labor costs, taxes and other necessary expenses when setting prices for goods, and that market rates are considered in the process.
KPRA officials said the withholding sales tax issue falls under the jurisdiction of the National Tax Council. They warned that complying with the FBR's demand could raise the province's expenses while reducing its revenue.
Kundi directed the relevant provincial departments to meet with FBR officials to resolve the matter. He said paying taxes is a hallmark of a responsible nation and essential to the country's development, and that tax evasion harms the country and its people and cannot be permitted.
The governor called for a joint committee of FBR and provincial finance department officials to resolve the sales tax dispute through negotiation, and urged both sides to clear up misunderstandings between the federal and provincial governments to reach a workable solution.
Chief Secretary Shahab Ali Shah noted that the federal government collects taxes and returns provinces' shares under the National Finance Commission Award. He said his office would work with FBR officials to resolve the withholding tax issue through mutual understanding.
