Karachi Tax Bar Association (KTBA) on Tuesday termed the action of the tax authorities asking shopping malls to collect advance tax on electricity as unlawful.
In a letter sent to Afaque Ahmed Qureshi, Member Inland Revenue (IR) – Policy, the KTBA informed that lately notices had been issued to certain shopping malls and Amusement Parks in Karachi, whereby they have been asked to collect income tax on the electricity bills under Section 235 of the Income Tax Ordinance, 2001.
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These notices have been issued despite the fact that it remains sole responsibility of the licensed person making the bill for power consumption, generated by it.
KTBA reproduces the provisions of Section 235 of the Income Tax Ordinance, 2001 for better understanding the issue:
Section 235. Electricity consumption. –
(1) There shall be collected advance tax at the rates specified in Division IV of] Part-IV of the First Schedule on the amount of electricity bill of a commercial or industrial or domestic consumer:
Provided that the provisions of sub-section (1) shall not apply to a domestic consumer of electricity if his name appears on the Active Taxpayers’ List.
(1A) In addition to tax collectible under sub-section (1), there shall be collected tax at the rates given in the Division IV of Part IV of First Schedule from retailers and service providers as provided under section 99A of the Ordinance:
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Provided that the tax shall not be collectible under this sub-section if the tax has been collected from the person under sub-section (9) of section 3 of the Sales Tax Act, 1990 as provided in the general order issued under section 99A of the Ordinance
(2) The person preparing electricity consumption bill shall charge advance tax under sub-section (1) in the manner electricity consumption charges are charged…”
KTBA President Rehan Jafri in the letter stated that a plain reading of the above clearly suggests that the person preparing the electricity consumption bill shall collect advance tax on the amount of electricity bill of either a commercial, industrial or domestic consumer and, therefore, once the power company like KE has done the collection of tax on its bills, it cannot be further collected by the second and the third persons be it shopping malls or Parks.
It is informed that there are certain field formation in Karachi jurisdiction, however, wherein few commissioners have issued notices without paying heed to the above.
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It remains important that the same commissioner have although accepted the submission that no sales tax is required to be charged by the same malls and parks under the Sales Tax Ac t, 1990.
The malls, on the other hand, provide space (shops/Area) to their tenants for their economic activity, on rent. They do not sell electricity to them and only installs sub-meter for them and that too with the permission of KE to measure the units of electricity consumed by each tenant (Shop & Office) so that K-Electric bill singularly sent to the mall in a lumpsum against a ‘Bulk Meter’ can be allocated accurately to each consumer as per its actual consumption. The allocation is claimed by issuing reimbursement notes to the tenants.
Besides the power supply from KE, the malls and amusement parks also install their own generator to ensure backup of power supply to its tenants in the above of KE supply for which again reimbursement notes are issued for claiming the cost of diesel used in the generator.
Needless to mention the allocated diesel cost is also measured through the same sub-meters as there is no other means to do so.
It goes without saying that the malls and parks are not engaged in the business of supply of electricity as it is not their business to supply electricity nor do they have the necessary permission (license) from NEPRA under Electric Power Act, 1997 for Generation, Transmission and Distribution of electricity to do so.
It is also important to mention, it is factually a compulsive exercise, which malls undertake in absence of separate KE meters installed at each of their shops/office. Had such separate KE meters would be installed directly by KE itself such compulsive exercise would never have to be undertaken by mall and the parks in the first place.
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The KTBA urged the Member IR Policy to take prompt action and provide a clarification that these malls/amusement again Parks/Office building are not required to collect income tax under section 235 of the Ordinance while issuing reimbursement note to their tenants for collecting the amount of electricity consumed by them, provided to them either through K-Electric supply or through own back-up generators as they are neither engaged in the business of supplying electricity nor do they have any license from NEPRA to do so.
“It is bound to secure the amount through reimbursement note owing to the fact that KE has not installed separate meters to each of their shops and offices. (the income tax has already been charged by the KE power bills to the Malls or the Parks, under section 235 of the Ordinance,” it added.
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