FBR Advised to Hike Tax for Non-ATL Electricity Consumers

FBR Advised to Hike Tax for Non-ATL Electricity Consumers

Karachi, April 25, 2024 – In a recent move to widen the tax base, the Federal Board of Revenue (FBR) has been advised to increase the tax rates for residential electricity consumers not listed on the Active Taxpayers List (ATL).

The suggestion, forwarded by the Pakistan Business Council (PBC), aims to incentivize tax compliance and generate higher revenues from non-compliant sectors.

The current tax policy levies an advance tax of 7.5 percent on monthly electricity bills exceeding Rs 25,000 for consumers who are not on the ATL. Under the new proposal, this rate would be significantly increased to 30 percent for monthly bills over Rs 100,000. This steep increase is part of a broader strategy to discourage tax evasion and encourage registration on the ATL.

The suggestion emerged from an analysis of utility and banking data, revealing a stark disparity between the number of registered accounts and actual tax filers. Out of over 4 million industrial and commercial utility connections, only 200,000 are registered for sales tax. Furthermore, there are over 66 million registered bank accounts as of March 2022, which does not align with the significantly lower number of taxpayers.

The PBC believes that the FBR should collaborate closely with utility companies, banks, and property registrars to pinpoint tax evaders more effectively. Moreover, there is a recommendation to utilize advanced data mining techniques and artificial intelligence, coordinated by the National Database Registration Authority (NADRA), to further expand the tax net.

Under the current regime, both filers and non-filers are subjected to a uniform advance tax rate—5 percent for industrial connections and 12 percent for commercial utilities. The PBC suggests a differentiated tax strategy, proposing that the advance tax for non-registered industrial and commercial customers be raised to 20 percent. This new rate would also apply to gas bills, maintaining consistency across utilities.

This proposal arrives at a crucial time when the FBR is under pressure to not only increase revenue collections but also to transform non-filers into regular taxpayers. The council emphasizes that relying solely on advance tax collection from non-filers is insufficient. The FBR should aim to set more ambitious targets to convert these non-filers into active contributors to the tax system.

Experts believe that while the proposed tax increase might lead to short-term financial strain for some consumers, it could ultimately serve as a strong deterrent against tax avoidance. Additionally, this measure is expected to streamline the process of identifying non-compliant taxpayers, thereby reinforcing the overall tax infrastructure.

The FBR’s response to the proposal is awaited. If implemented, this initiative could mark a significant shift in Pakistan’s approach to dealing with tax evasion, particularly among high-earning residential electricity consumers. The success of such a policy, however, will depend on its execution and the public’s response to the heightened tax burden.