Legal lacuna stirs confusion among withholding tax agents

KARACHI: A legal lacuna in a tax law has caused confusion among electricity distribution companies about the deduction of withholding tax from their domestic consumers, sources said.
A new section 235A introduced into the Income Tax Ordinance, 2001 through the Finance Act 2015 made it mandatory for the power distributors to impose adjustable advance tax on the amount of electricity bill of a domestic consumer.
Under this section, electricity providers or preparers of electricity bills are required to deduct 7.5 percent tax from persons consuming electricity worth Rs75,000/month.
However, at the same time the law restricts the electricity providers from deducting any withholding tax from those domestic consumers who consume electricity less than Rs100,000/month.
This flaw is leading to difficulties for power suppliers in deducting withholding tax from domestic consumers.
Many stakeholders have been pointing out this for long, but tax authorities have so far failed to rectify the contradiction, the sources said.
Tax consultants have already urged the government to bring down the tax deduction ceiling to Rs75,000 from the present Rs100,000.
The section was not introduced into the Finance Bill, 2015 that was presented on the day of budget speech, June 03, 2015, but later when the parliament passed the Act. The Finance Act, 2015 was implemented on July 01, 2015.
Since then the tax machinery did not bother to issue any clarification on the issue, said a source.
The electricity consumers having industry or commercial connection are already subject to advance tax with various rates of withholding tax on different amounts of bills.
However, in such cases the taxpayers registered as exporter or manufacturers of carpets, leather, surgical goods, sport goods and textile are exempted from deduction of such tax.
If the bill on a commercial connection exceeds Rs20,000 the consumer is liable to pay 10 percent withholding tax and in case of the industrial consumer the rate is 5 percent.
In those cases where the consumers are non-company the tax will be treated as minimum on bill amounting up to Rs30,000. Further, it will be adjustable for such consumers if a monthly bill exceeds Rs30,000.