The government is working on a policy to create an amendment through the finance bill to charge general sales tax (GST) on actual collection rather than bills issued by power distributors as the power sector’s pending refunds have reached Rs. 377 billion.
The sector is facing a liquidity crisis as the FBR charges GST on the billed amount instead of actual collection. A subsidy is given to people using up to 300 units monthly and the FBR collects sales tax on the subsidized amount.
The Power Division is of the opinion that the FBR should collect sales tax on the amount received from power users. As it stands the FBR collects tax on 100% of the billed amount but the recovery is at 90%.
The power distributors are unable to collect the remaining bills due to theft and line losses but the FBR still charges them.
According to sources, the problem has been presented to the Cabinet Committee on Energy (CCOE) to help resolve this and they have asked the FBR to refund Rs. 330 billion of GST.
During the meeting, the Power Division stated that another reason for the current liquidity crisis was the tax refunds. The FBR receives huge cash flow from the companies which collect the money on their behalf. This means they are entitled to refunds that are carried forward. Currently, it is at Rs. 250 billion and another Rs. 127 billion is on the GST on subsidy paid by the government.