Chartered accountants call for reforms in utility tax collection system, citing misclassification and compliance issues in FY2026-27 proposals
ISLAMABAD, June 4, 2026 — The Institute of Chartered Accountants of Pakistan (ICAP) has urged the government to review the mechanism for collecting additional sales tax through electricity and gas bills, arguing that the current system is creating undue tax burdens for registered and exempt entities.
In its budget proposals for fiscal year 2026-27, ICAP called for amendments to S.R.O. 1222(I)/2021, which requires utility companies to collect extra sales tax from unregistered commercial and industrial consumers.
According to the notification, electricity and gas distribution companies currently impose an additional 17% sales tax on industrial consumers who are not registered with the tax authorities. Unregistered commercial consumers are also charged extra tax ranging from 5% to 17%, depending on billing thresholds.
ICAP said the existing framework needs targeted revisions to address practical issues that are leading to unintended tax liabilities for legitimate taxpayers.
The institute highlighted that many electricity and gas connections are registered in the name of property owners rather than actual business operators, resulting in mismatches with the Federal Board of Revenue (FBR) database and causing registered taxpayers to be incorrectly treated as unregistered entities.
ICAP noted that large organisations — including banks, insurance companies, telecom operators, multinational corporations and industrial groups — often operate multiple branches, warehouses and offices that may not be individually reflected in the FBR’s registration system. As a result, these entities may be incorrectly subjected to additional tax despite being compliant taxpayers.
The institute further pointed out that updating business location data in the FBR database is often a time-consuming process. During this period, registered businesses may continue to face extra tax charges simply due to incomplete or outdated records.
ICAP also raised concerns regarding government institutions, defence organisations, social sector entities and service providers that are either exempt from sales tax registration or registered under provincial tax regimes. Despite this, they may still be classified as commercial consumers and charged additional tax under the current mechanism.
In addition, cottage industries, retailers, hospitals, diplomatic missions and organisations exempt under the Sixth Schedule of the Sales Tax Act are also being affected, according to ICAP, despite not being required to obtain sales tax registration.
The institute argued that revising the notification would help ensure that only genuinely unregistered taxable persons are subject to the additional levy, while reducing compliance burdens and administrative complications.
ICAP said the proposed changes would improve fairness in the tax system and prevent unintended taxation of compliant or exempt entities.
