Karachi, September 13, 2024 – The Federal Board of Revenue (FBR) has released updated withholding tax rates applicable to electricity bills for the tax year 2024-25.
These rates, outlined under Section 235 of the Income Tax Ordinance, 2001, apply to both commercial, industrial, and domestic consumers, and are part of the FBR’s broader effort to streamline tax collection on utility services.
Withholding Tax on Commercial and Industrial Consumers:
For commercial and industrial electricity users, the withholding tax is based on the gross amount of the monthly electricity bill. The rates for tax year 2024-25 are as follows:
1. Gross amount of bill up to Rs 500: No withholding tax will be applied, and the tax rate will be zero.
2. Gross amount of bill exceeds Rs 500 but does not exceed Rs 20,000: A 10% tax will be levied on the total bill amount.
3. Gross amount of bill exceeds Rs 20,000:
o For commercial consumers, a fixed tax of Rs 1950 will apply, along with 12% of the amount exceeding Rs 20,000.
o For industrial consumers, a fixed tax of Rs 1950 will apply, along with 5% of the amount exceeding Rs 20,000.
These revised rates aim to align the tax burden with consumption, ensuring that larger consumers contribute more to the national exchequer while smaller users are exempted or taxed at lower rates.
Withholding Tax on Domestic Consumers:
For domestic electricity users, the withholding tax is specifically targeted at individuals who are not listed on the Active Taxpayers List (ATL). The FBR clarified that individuals who appear on the ATL will not be subject to this tax. The tax rates for non-ATL domestic consumers are structured as follows:
1. Monthly bill less than Rs 25,000: No withholding tax will be applied, and the rate will be zero.
2. Monthly bill of Rs 25,000 or more: A withholding tax of 7.5% will be imposed on the total bill amount.
This differential tax treatment incentivizes individuals to appear on the ATL, which can exempt them from this additional cost on their electricity bills. For non-ATL domestic consumers with high electricity usage, the 7.5% withholding tax on bills exceeding Rs 25,000 could add a significant financial burden.
Encouraging Tax Compliance:
The FBR’s withholding tax regime on electricity bills is part of its strategy to enhance tax compliance and expand the taxpayer base. By imposing higher taxes on non-ATL individuals, the FBR aims to encourage greater participation in the formal tax system while ensuring that those who consume more pay proportionately.
As these new withholding tax rates take effect for the tax year 2024-25, both commercial and domestic electricity consumers are encouraged to review their electricity bills and ensure they remain compliant with the FBR’s regulations.
