Karachi, October 28, 2024 – In a record-breaking surge, Pakistan’s tax authorities reported a 176% increase in revenue collection from advance tax on electricity consumption during the first quarter of fiscal year 2024-25, spanning July to September. The dramatic rise, attributed to escalating power tariffs, underscores the financial strain on consumers while offering the Federal Board of Revenue (FBR) a substantial revenue boost.
The FBR collected Rs 10.40 billion in advance tax from electricity consumption in the first quarter of FY2025, a marked increase from Rs 3.77 billion collected in the same period last year, sources within the FBR confirmed. This increase was largely driven by sustained hikes in electricity charges, which have intensified over recent months, fueled by ongoing capacity payment challenges in the energy sector.
Under Section 235 of Pakistan’s Income Tax Ordinance, 2001, the FBR levies advance tax on electricity bills issued to commercial, industrial, and domestic consumers. According to the law, rates are defined in Division IV of Part IV of the First Schedule and applied directly to the billed electricity amount. However, there are provisions for exemption; domestic consumers listed on the Active Taxpayers’ List (ATL) are not subject to the advance tax on their electricity bills, offering some respite for individual households.
Sources highlighted that the advance tax on electricity consumption is calculated on the entire electricity bill, including all incidental charges, such as sales tax, to ensure a comprehensive tax application. Electricity providers are mandated to apply this tax to the consumption bill, ensuring compliance with Section 235. This includes not only the core consumption charges but also auxiliary costs, enhancing revenue consistency.
Exemptions are available to certain taxpayers who can produce a certification from the Commissioner, confirming that their annual income falls within exempted thresholds or that they have already discharged their advance tax liabilities under Section 147. Additionally, taxpayers governed by Pakistan’s final tax regime or minimum tax regime are similarly excluded from this levy if they meet the qualifying criteria.
The surge in electricity tariffs has sparked widespread public outcry, reflecting the strain on households and businesses alike. Capacity payment challenges and broader energy sector inefficiencies have led to consistently elevated electricity costs, which, while challenging for consumers, have led to higher tax revenues for the FBR.
This remarkable uptick in revenue signals the increasing role of utility taxation as a key revenue stream for Pakistan. As the fiscal year progresses, the FBR’s strategic leveraging of utility charges for tax collection will continue to shape Pakistan’s fiscal landscape, raising questions about the long-term sustainability of relying on rising utility costs to drive tax revenue.