ICAP suggests reviewing extra tax on electricity, gas consumption by industrial, commercial consumers

KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has suggested the tax authorities to review imposition of extra sales tax on electricity and gas as this levy is passed unnecessarily to consumers by utility companies.

The ICAP in its tax proposals for budget 2019/2020 submitted to Federal Board of Revenue (FBR) said that in terms of SRO 509(I)/2013 read with Special Procedures thereof, every electric power and gas distribution company / organization supplying electricity or gas to commercial and industrial consumers is required to charge and collect extra tax at 5 percent having monthly bill exceeding Rs15,000/- and which have either not provided their sales tax registration number or not appearing in the Active Taxpayers’ List.

The ICAP said that to make reasonable amendments in SRO 509(I)/2013 considering the practical issues being faced by taxpayers as given below in “rational for change.”

This SRO has posed following questions, as a result of which extra tax is unnecessarily being passed on by utility companies to its consumers:

a) Majority of electricity connections / accounts are maintained in the name of person who possesses the ownership of commercial / industrial property.

Therefore, particulars of the consumers available on sales tax registration certificate / upon FBR portal do not match with the name of the account holders.

b) Banks, Insurance companies, Telecommunication companies, Large Multinational and other similar organizations operate through numerous business locations, manufacturing premises, facilitation offices, distribution & warehouses which, in most cases, are not in the name of such organizations.

Further, sales tax registration particulars on FBR Portal do not reflect all such business places from which business operations are carried out.

If the procedures envisaged in SRO 509 are followed, extra tax would be charged and collected from registered persons in respect of all of their electric connections, which are not in the name of such registered persons.

Furthermore, updation of these particulars (e.g.business locations) on FBR database may take considerable time and Banks, Insurance companies, Telecommunication\ companies, Large Multinational which are already registered for sales tax, will have to bear extra tax of 5 percent on all such electric & gas connection just because they are not updated in their name over FBR Web Portal.

c) Institutions owned by Federal and Provincial governments, defense organization, social sector institution and various other service providers are either not required to obtain sales tax registration number or are registered under Provincial Law.

Hence, they neither possess any sales tax registration number nor are required to obtain any registration under the STA.

However, most of the aforesaid organizations or institutions are commercial consumers and by virtue of the SRO, they are unnecessarily suffering extra tax.

d) Cottage Industry, retailers, hospitals, various agencies, diplomatic missions, privileged persons and organizations have been specifically exempted under the Sixth Schedule to the STA and are not required to obtain registration.

However, most of the aforesaid organizations or institutions are commercial consumers and by virtue of SRO, they are unnecessarily suffering extra tax.

e) Payment of extra tax on accrual basis (bill basis) by utility companies in the backdrop of low recovery ratio / non-payment of electricity bill by government and private institutions poses a great liquidity threat to utility companies.

“Hence, it is recommended that extra tax should be recovered on receipt basis, as it was never a tool for revenue generation but a penal provision to induce registration drive.”

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