PESHAWAR: The Khyber Pakhtunkhwa government has rejected a federal proposal for an at-source deduction of Rs6.4 billion from federal transfers payable to the provinces.

Details available with Dawn show that on Aug 5, the Finance Ministry informed the Accountant General of Pakistan Revenues (AGPR) Peshawar office about the proposed at-source deduction.

“I am directed to convey at source deduction of Rs6.4 billion for the month of July 2026, on behalf of government of Khyber Pakhtunkhwa,” the letter said.

It said that the amount was adjustable in the accounts for FY 2026-27, requesting a formal advice of adjustment, when carried out, to be provided to the division.

However, on Thursday, KP Finance Department wrote to the Accountant General KP, stating that the KP government had not approved the finance division’s proposed deduction.

“The MoU circulated by the federal government for this purpose has not been approved by the provincial cabinet or signed by the provincial government, nor has any budgetary provision been made for the proposed arrangement in the provincial budget for FY 2026-27. Significantly, the circulated MoU itself provides that no at-source deduction shall be made from the provincial share,” the letter said.

It said the constitutional position was clear and that Article 164 of the Constitution did not authorise unilateral deductions from funds constitutionally payable to a province. It added that no express consent or authorisation under the said article had been granted by the KP government.

“Any deduction from the province’s constitutional fiscal entitlement must have an express constitutional or statutory basis and cannot be effected merely through an executive or accounting instruction,” it said.

The letter further said that the matter was also discussed in the meeting chaired by the advisor to the chief minister on finance, attended by representatives of the AG KP Office, wherein it was decided that no action would be taken without the concurrence of the KP government.

“In view of the above, it is requested that no deduction, debit, adjustment or accounting entry of Rs6.400 billion, or any amount on this account, may be made against the KP government unless expressly concurred with by the provincial government and supported by lawful constitutional/statutory authority,” it said, adding that the AGPR may also be informed accordingly not to record or give effect to any such transaction on behalf of the KP government without its express concurrence.

In a statement, Chief Minister Sohail Afridi said that the federal government, prior to the budget, had demanded additional funds from the KP government, just as it had from other provinces.

CM Afridi said that he had made the provision of this amount conditional upon a meeting with incarcerated PTI leader Imran Khan and his permission.

The second condition was that the merged districts should be given their constitutional and legitimate share under the 11th National Finance Commission, and a period of six months was set for this; otherwise, an ordinance would be issued for the purpose under the 7th National Finance Commission.

However, he said that while their second condition was immediately accepted and formally made part of the proceedings of the National Economic Council meeting, a meeting with Imran was not arranged before the budget.

Afridi said that the KP government had, to date, neither approved nor signed any memorandum of understanding with the federal government regarding the additional amount. Besides, he said that the federal grant was not included in the provincial budget for FY2026-27 either.

CM Afridi added that the KP government had already filed a petition with the Federal Constitutional Court for the enforcement of its constitutional rights under the National Finance Commission.

“My government will not compromise on any of KP’s constitutional, financial, and National Finance Commission rights and the federal government cannot be granted the authority to unilaterally deduct funds from a province’s due financial share on the basis of any memorandum of understanding or arrangement that has not been approved or signed by the provincial government,” he said.