Karachi, March 7, 2025 – The Federal Board of Revenue (FBR) has reported a remarkable Rs 85 billion in advance income tax collected through electricity bills during the first half of the ongoing fiscal year 2024-25. This marks a significant 23% increase compared to the Rs 69 billion collected in the same period last year, showcasing the effectiveness of the FBR’s tax collection mechanisms.
The advance tax on electricity consumption is enforced under Section 235 of the Income Tax Ordinance, 2001, which mandates tax deductions directly from the electricity bills of commercial, industrial, and specific domestic consumers. The tax is collected by the relevant electricity distribution companies, with rates varying according to the type of consumer and the amount of the bill.
Key Features of Section 235 on Electricity Consumption
Under Section 235, the FBR imposes an advance tax on electricity usage at different rates based on consumer categories. Domestic consumers who are registered on the Active Taxpayers’ List (ATL) are exempt from this tax. The tax is applied directly to electricity bills, alongside other applicable charges, such as sales tax and incidental levies. Here’s a breakdown of the key provisions of Section 235:
- Sub-section (1): Advance tax is applied to electricity consumption at rates specified in the First Schedule of the Income Tax Ordinance. Domestic consumers who are on the ATL do not incur this tax.
- Sub-section (2): The entity responsible for issuing electricity bills is tasked with collecting the advance tax alongside other charges, ensuring it is deducted at the time of billing.
- Sub-section (3): Taxpayers who provide a certificate confirming their income is exempt or who have already paid advance tax under Section 147 are exempt from this tax. Those under the final tax regime are also not subject to this tax.
- Sub-section (4): For non-corporate taxpayers with annual electricity bills not exceeding Rs 360,000, the tax is treated as a minimum tax. For companies, the tax paid can be adjusted against their overall tax liability at the end of the fiscal year.
Tax Rates on Electricity Bills
The tax is applied based on the amount of electricity consumed, with different rates for various consumer categories:
- Domestic Consumers: No tax is applied to electricity bills up to Rs 25,000. However, if the bill exceeds Rs 25,000, a 7.5% tax is imposed.
- Commercial Consumers: If the electricity bill exceeds Rs 20,000, a flat tax of Rs 1,950 is charged, plus 12% of the amount exceeding Rs 20,000.
- Industrial Consumers: These consumers are taxed at a 5% rate for amounts exceeding Rs 20,000.
- Non-Corporate Taxpayers: For non-corporate taxpayers whose annual electricity consumption bill does not exceed Rs 360,000, the advance tax is considered a minimum tax.
In December 2024 alone, the FBR collected Rs 12 billion through electricity bills, reflecting a modest growth of 1% compared to Rs 11.82 billion collected in December 2023. While the growth is slight, the consistent collection of taxes through electricity bills reflects a broader trend of improving tax compliance in the country.
The FBR’s focus on leveraging electricity bills for tax collection is part of broader efforts to boost revenue generation and ensure greater tax compliance. This strategy has proven effective, particularly in increasing voluntary tax payments from commercial and industrial consumers. However, with tax evasion still a concern in certain sectors, the FBR continues to refine its enforcement efforts, using digital monitoring and audits to ensure compliance.
A Commitment to Strengthen Tax Collection
With the ongoing fiscal year poised for continued improvements in revenue collection, the FBR remains committed to maximizing tax compliance and revenue generation through both traditional and digital means. The steady growth in tax receipts from electricity bills indicates that this method of tax collection is likely to remain a critical part of Pakistan’s overall taxation strategy in the future.
In conclusion, the FBR’s collection of Rs 85 billion in advance income tax through electricity bills highlights the growing efficiency of Pakistan’s tax system. As the country continues to implement stricter enforcement measures, the goal remains to broaden the tax base and ensure that more taxpayers fulfill their obligations, ultimately contributing to the national economy’s stability and growth.