PESHAWAR: The Federal Board of Revenue (FBR) has strongly objected to the KP government’s failure to include the 18% federal sales tax on solar panels and related equipment in its Market Rate System.
In a letter to the KP Finance Secretary, the FBR warned that the omission was causing a continued loss of revenue to the federal government. It also said the issue could be taken up with the federal government and international donors and lending institutions if it was not resolved soon.
The FBR has warned that due to this negligence, the federal treasury is continuously suffering financial losses, while if the matter is not resolved immediately, it will also be raised before the federal government and international donor and lending institutions.
The letter issued by the Deputy Commissioner Income Tax of the Regional Tax Office Peshawar added that although income tax, provincial sales tax, overhead charges and contractor’s profit have been included in the market rate system 2025. However, 18 per cent federal sales tax has not been included, due to which the collection of federal tax on government purchases is being affected.
According to the letter, this is not the first time that this issue has come up, but the provincial government has been informed about it several times before. The Commissioner Income Tax wrote a letter to the Chief Secretary on April 2, the Governor KP directed corrective measures on April 14, while the KP Public Procurement Regulatory Authority and the Communication and Works Department also issued orders to all purchasing departments to ensure collection of federal sales tax, but despite this, the required change in the market rate system was not made.
The FBR has pointed out in the letter that after consultation with the Finance Department, it was decided that federal sales tax would be collected on solar equipment as per the Sales Tax Act, 1990, but later after the explanatory note issued on July 3, the previously decided procedure could not be implemented.
The letter states that under the Sales Tax Act 1990, 18 per cent federal sales tax is applicable on all taxable supplies in Pakistan, while provincial government departments are legally withholding agents and are required to deduct tax as per law at the time of payment. The non-inclusion of this tax in the market rate system is not only affecting the implementation of federal laws but also facing legal complications for government departments in the procurement process.
The FBR has also said that despite several high-level meetings, correspondence and instructions issued on this issue from October 2025 to January 2026, effective corrective measures have not been taken by the provincial government.
Through the letter, the FBR has demanded KP government to immediately include 18 percent federal sales tax and other related taxes in the market rate system, provide records of all purchases made under the current system, and ensure full implementation of federal tax laws. The FBR has warned that if there is further delay on this issue, it will also be raised before the federal government and international donor agencies.
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