Khyber Pakhtunkhwa Clarifies Sales Tax on Services for Formerly Exempted Areas

Khyber Pakhtunkhwa Revenue Authority (KPRA) and Accountant General (AG) Office Agree on Tax Withholding

A recent meeting between KPRA and the AG Office of Khyber Pakhtunkhwa has addressed the application of Sales Tax on Services (ST) in the formerly exempt areas of FATA and PATA (now part of Malakand Division). Here’s a breakdown of the key points:

  • Expired Exemption: The previous exemption for FATA and PATA regarding ST on services has expired as of October 31, 2023.
  • ST Extension: ST on services is now applicable to businesses and services within the formerly exempt areas.
  • AG Office Compliance: The AG Office has agreed to withhold ST on services from bills processed for these areas, ensuring consistent tax collection.
  • Data Sharing: KPRA and the AG Office will establish data sharing protocols, potentially through a formal written request system.
  • Transparency in Exemptions: KPRA uploads exemption letters and clarifications on their website to promote transparency and prevent misuse or forgery.
  • Verification of Exemptions: The AG Office will verify exemption claims against the KPRA website to ensure legitimacy.
  • Integration of Systems: The KPRA ICT team will collaborate with the AG Office to integrate case-by-case exemptions into their financial systems for reference and reduced human intervention.
  • Complete Integration and Compliance: Both parties aim for complete integration of their respective accounting systems (SAP and FABS) to ensure all service-related bills processed by the AG Office include ST.

Expected Outcomes:

  • Increased Revenue for KPRA: Effective ST collection from these previously exempt areas can lead to a revenue boost for the KPRA.
  • Improved Tax Compliance: Clearer guidelines and stricter enforcement will promote consistent tax application and compliance.
  • Transparency and Efficiency: Data sharing and system integration can enhance transparency and streamline tax administration processes.

Looking Forward:

This collaboration between KPRA and the AG Office signifies a commitment to ensure comprehensive ST application across Khyber Pakhtunkhwa. Businesses operating in the formerly exempt areas should be aware of these changes and ensure their service bills reflect the appropriate ST deductions.

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