The federal government of Pakistan has introduced an additional advance income tax (AIT) of up to 35% on the consumption of electricity by individuals not appearing on the Active Taxpayers List (ATL).
This measure, implemented through the Tax Laws (Third Amendment) Ordinance, 2021, is designed to incentivize professionals and individuals to declare their income and assets.
The amendment to Section 235 of the Income Tax Ordinance, 2001 introduces new clauses, placing the burden of additional advance tax on those who have not filed a declaration of income and assets. The Federal Board of Revenue (FBR) issued the text of the ordinance, outlining the rates and conditions for the imposition of this tax.
Professionals operating from residential premises with domestic electric connections and not appearing on the ATL are the primary targets of this additional advance tax. The categories covered include accountants, lawyers, doctors, dentists, health professionals, engineers, architects, IT professionals, tutors, trainers, and other service providers.
The rates for additional advance tax are structured based on the gross amount of electricity bills, and they vary as follows:
1. Where the bill does not exceed Rs10,000: Additional advance tax of 5%
2. Where the bill exceeds Rs10,000 but does not exceed Rs20,000: Additional advance tax of 10%
3. Where the bill exceeds Rs20,000 but does not exceed Rs30,000: Additional advance tax of 15%
4. Where the bill exceeds Rs30,000 but does not exceed Rs40,000: Additional advance tax of 20%
5. Where the bill exceeds Rs40,000 but does not exceed Rs50,000: Additional advance tax of 25%
6. Where the bill exceeds Rs50,000 but does not exceed Rs75,000: Additional advance tax of 30%
7. Where the bill exceeds Rs75,000: Additional advance tax of 35%
The objective of this measure is twofold: to boost tax revenue and to promote tax compliance among professionals and individuals engaged in service-oriented activities. By linking the additional advance tax to electricity consumption, the government aims to create a direct incentive for individuals to formalize their financial affairs and become active taxpayers.
This step aligns with broader efforts to strengthen the tax collection system and reduce the prevalence of tax evasion. It also emphasizes the government’s commitment to creating a fair and equitable tax environment that encourages responsible financial behavior.
As the additional advance income tax on electricity consumption takes effect, professionals and individuals falling within the specified categories are urged to assess their tax compliance status and take necessary steps to appear on the ATL. This not only helps in avoiding higher tax rates but also contributes to building a transparent and robust tax system that supports the country’s economic development goals.
