Pakistan Unveils New Withholding Tax Rates on Electricity Bills

Pakistan Unveils New Withholding Tax Rates on Electricity Bills

Karachi, August 27, 2023 – In a bid to streamline its tax system and encourage responsible energy consumption, the Federal Board of Revenue (FBR) of Pakistan has unveiled revised withholding tax rates on electricity bills for the fiscal year 2023-24.

These updated rates, effective from July 01, 2023, apply uniformly to both residential and commercial/industrial consumers and were implemented in accordance with changes introduced by the Finance Act, 2023 to the Income Tax Ordinance, 2001.

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Under Section 235 of the Income Tax Ordinance, the FBR is responsible for collecting withholding income tax. The newly introduced tax rates introduce a tiered approach for commercial and industrial consumers:

For bills totaling up to Rs 500: A welcome relief for smaller businesses and consumers as the tax rate is set at zero percent.

For bills exceeding Rs 500 but not surpassing Rs 20,000: A modest 10 percent tax will be levied on the total bill amount, striking a balance between taxation and affordability.

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For bills exceeding Rs 20,000: A more intricate calculation comes into play. Commercial consumers will bear a tax rate of Rs 1,950 plus 12 percent of the amount exceeding Rs 20,000, while industrial consumers will face a tax rate of Rs 1,950 plus 5 percent of the amount exceeding Rs 20,000. This structure aims to ensure that larger energy consumers contribute equitably.

Domestic consumers of electricity will only be subject to withholding tax if they are not listed on the Active Taxpayers List (ATL):

For monthly bills less than Rs 25,000: No withholding tax will apply, providing relief to low-consumption households.

For monthly bills totaling Rs 25,000 or more: A reasonable 7.5 percent tax will be deducted, contributing to government revenues without imposing a heavy burden on households.

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These new tax rates are critical for consumers to be aware of to ensure compliance with the law. The FBR’s decision to introduce tiered tax rates based on electricity consumption is designed to promote energy conservation while enhancing the efficiency of tax collection.

This move is a significant stride toward transparency and fairness in the tax system, and it is anticipated to have a positive impact on the government’s overall revenue collection. The FBR encourages all consumers to scrutinize their electricity bills and ensure accurate tax deductions in line with these updated rates to avoid any potential penalties or complications.

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For those seeking further information or clarification regarding these tax rates, the Federal Board of Revenue welcomes direct communication. Additionally, consumers can consult with qualified tax advisors to navigate the tax implications effectively. Pakistan is taking a measured step towards aligning its tax system with modern economic realities, benefiting both the government and its citizens.