Collection of income tax on electricity bills increases to Rs34 billion in FY2018

KARACHI: Collection of income tax on electricity bills surged 31 percent to Rs34 billion during the last fiscal year of 2017/18 on increased power generation and improved vigilance on withholding tax deductions, officials said on Wednesday.

Revenue collection on gross amount of electricity bills consumed by commercial and industrial consumers increased to Rs33.83 billion in FY2018 compared with Rs25.84 billion in the preceding fiscal year.

Power supply companies are responsible to deduct withholding tax through electricity bills under Section 235 of Income Tax Ordinance, 2001; although the Federal Board of Revenue (FBR) allowed exemption on certain electricity bills of commercial and industrial users. Various slabs have been introduced for consumers with fixed withholding tax rates.

If a monthly bill exceeds Rs20,000 the tax rate is 12 percent for commercial consumers and five percent for industrial consumers.

Tax officials said increase in availability of electricity was one of the reasons for higher revenue generation.

Economic Survey of Pakistan for 2017/18 said installed capacity of electricity reached 29,573 megawatts up till February, which was 22,812 MW in 2012/13, showing a growth of 30 percent.

Similarly, power generation increased to 117,326 gigawatt hours from 96,496 GWh during the five-year period, up 22 percent.

Effective monitoring of withholding tax deducted by power companies was another reason for a significant rise in revenue collection.

The adjustable advance tax was imposed on industrial and commercial consumers to encourage them to file income tax returns. The FBR has detected around 2.09 million commercial and industrial power consumers who are required to file income tax returns. However, the total return filers in the country are lamentably low at 1.5 million.

The FBR has already initiated exercise to bring industrial and commercial consumers into the tax net under the broadening of tax base drive. The FBR further collected Rs400 million from domestic electricity consumers during the last fiscal year. The collection registered 29 percent growth when compared with Rs310 million in the preceding fiscal year.

Domestic consumers are exempted from tax on monthly bill of up to Rs75,000. Tax rate is 7.5 percent on bill exceeding the benchmark.