Karachi, November 29, 2024 – Karachi’s large taxpayers have paid Rs 12.50 billion as advance tax on electricity consumption during the first four months (July – October) of the current fiscal year 2024-25, according to sources from the Federal Board of Revenue (FBR). The payment marks a significant surge, highlighting a substantial increase in tax collection for the period.
The Large Taxpayers Office (LTO) Karachi, which is the primary revenue-generating arm of the FBR, has collected Rs 12.50 billion in advance tax payments on electricity consumption for the four-month period. This amount represents a 128% increase compared to the Rs 5.50 billion collected in the same period last year, according to FBR sources. The increase in tax revenue can be attributed to several factors, but the most significant of these is the unprecedented rise in electricity tariffs over the past year, which has resulted in higher electricity bills and, consequently, higher tax payments.
The FBR collects advance tax on electricity consumption under Section 235 of the Income Tax Ordinance, 2001. This section mandates that advance tax is charged on the amount of electricity consumed by commercial, industrial, and certain domestic consumers. The tax is levied on the electricity bills issued to these consumers, and the rates vary based on the amount of the bill and the type of consumer.
Key Provisions of Section 235 on Electricity Consumption:
• Sub-section (1): Advance tax is collected on electricity consumption at rates specified in the First Schedule of the Income Tax Ordinance. However, domestic consumers listed on the Active Taxpayers’ List (ATL) are exempt from this tax.
• Sub-section (2): The electricity bill issuer is responsible for charging the advance tax in the same manner as other charges are applied to the bill, including sales tax and incidental charges.
• Sub-section (3): Tax is not collected from individuals who provide a certificate proving their income is exempt or that they have already paid advance tax under Section 147 of the Ordinance. Additionally, individuals whose income is subject to a final tax regime are also exempt.
• Sub-section (4): The advance tax collected under this section is treated as a minimum tax for taxpayers other than companies if the total bill amount does not exceed Rs 360,000 annually. For companies, the advance tax is adjustable against the tax liability at the end of the fiscal year.
The tax rate is tiered according to the size of the bill. For example:
• For bills up to Rs 500, no tax is applied.
• For bills exceeding Rs 500 but not more than Rs 20,000, a tax rate of 10% is applied.
• For bills over Rs 20,000, the tax rate becomes Rs 1,950 plus 12% of the amount exceeding Rs 20,000 for commercial consumers, and 5% for industrial consumers.
Domestic consumers are charged differently, with no tax on bills below Rs 25,000, and a tax rate of 7.5% for bills of Rs 25,000 or more.
Tax Collection Performance for October 2024
In October 2024, the FBR recorded Rs 2.05 billion in advance tax collection on electricity consumption. This was a notable increase of 21% compared to the Rs 1.7 billion collected in October 2023. This surge in collections reflects both the increase in electricity rates as well as growing compliance with tax regulations by large consumers in Karachi.
The significant rise in advance tax payments highlights not only the impact of higher electricity costs but also the FBR’s continued efforts to ensure that large taxpayers are contributing appropriately to the national tax revenue. The collected Rs 12.50 billion in advance tax will go a long way in supporting the federal government’s fiscal objectives, as it strives to meet its budgetary goals for the year.
Despite the challenges posed by rising electricity costs, the FBR has shown resilience in its revenue collection efforts, with the tax paid by Karachi’s large taxpayers serving as a vital source of income for the government. As electricity consumption continues to be a major component of business expenses in Karachi, it is expected that this trend in tax collection will continue to grow in the coming months.
