Karachi, August 14, 2024 – The Federal Board of Revenue (FBR) has reported a remarkable 70% surge in advance tax collection from electricity bills during the fiscal year 2023-24. This increase is largely attributed to the escalating electricity tariffs, which have been a source of concern for both industrial and residential consumers across Pakistan.
The data driving this surge comes primarily from the Large Taxpayers Office (LTO) in Karachi, which is a key tax collection arm of the FBR. The LTO Karachi holds jurisdiction over large-scale companies and high-net-worth individuals, making it a pivotal player in the country’s tax collection efforts.
According to sources within the FBR, LTO Karachi successfully collected PKR 26 billion as advance tax on electricity bills in the fiscal year 2023-24. This is a substantial increase compared to the PKR 15.30 billion collected during the corresponding period of the previous fiscal year. This sharp rise underscores the impact of the government’s fiscal policies and the adjustments made in response to economic challenges.
The significant increase in tax collection from electricity bills is a direct result of rising power tariffs. Over the past several months, both industries and citizens have been grappling with soaring electricity bills. This spike in energy costs is largely a consequence of the government’s commitment to comply with the International Monetary Fund (IMF) directives aimed at reducing the circular debt crisis.
However, the steep rise in electricity bills has led to growing concerns about the affordability of power, particularly among residential consumers and smaller industries. Many have found it increasingly difficult to cope with the financial burden, with monthly power bills often exceeding their payment capacities. The situation has sparked widespread criticism and raised questions about the sustainability of such fiscal measures.
The FBR’s advance tax collection is conducted under Section 235 of the Income Tax Ordinance, 2001, as updated till June 30, 2024. The recent surge in tax revenue is a reflection of the additional financial burden passed on to consumers, which includes charges such as capacity payments, fuel adjustment charges, and both monthly and quarterly adjustments.
For commercial and industrial consumers, the withholding tax on electricity bills is calculated as follows:
• Gross bill amount up to PKR 500: Exempt from withholding tax.
• Gross bill amount exceeding PKR 500 but not exceeding PKR 20,000: Tax rate is 10% of the bill amount.
• Gross bill amount exceeding PKR 20,000:
o Commercial consumers: Tax rate is PKR 1,950 plus 12% of the amount exceeding PKR 20,000.
o Industrial consumers: Tax rate is PKR 1,950 plus 5% of the amount exceeding PKR 20,000.
For domestic electricity consumption, the tax rates are as follows:
• Monthly bill less than PKR 25,000: Zero percent tax.
• Monthly bill of PKR 25,000 or more: 7.5% tax.
The significant surge in tax collection reflects the government’s efforts to enhance revenue through existing channels. However, it also highlights the growing strain on consumers who are struggling to manage the rising costs. The FBR’s achievement in tax collection is a double-edged sword; while it bolsters the government’s fiscal position, it also intensifies the financial pressures on the populace.
