Fixed Tax Regime Abolished a Month After Budget 2022-23

The fixed tax regime charged on electricity bills has been abolished, lasting only over a month, at the demand of traders.

Federal Minister for Finance and Revenue, Miftah Ismail, revealed this while talking to the media. He said the fixed tax regime had been abolished under the direction of the Prime Minister.

The Federal Minister for Energy (Power Division), Khurram Dastgir Khan, adding to Miftah’s statement, said that the rest of the current measures will continue for the next three months, after which the traders’ community will be consulted to see whether further reforms are necessary.

The fixed tax regime was announced in the budget 2022-23 but has been in effect since 2014, when commercial consumers were split into two categories based on their monthly bills, according to the Federal Board of Revenue (FBR) spokesperson.

The fixed tax system was a rare opportunity to bring traders into the tax net. Traders could file their income tax returns, be part of the active taxpayers’ list, and benefit from the fixed tax regime.

As of July 1, 2022, commercial electricity bills up to Rs. 30,000 would be levied with a fixed tax of Rs. 3,000; an Rs. 5,000 tax would be levied on bills between Rs. 30,001 and Rs. 50,000; and bills between Rs. 50,000 and 100,000 would be subjected to a fixed tax of Rs. 10,000.

The aforementioned rates were applicable to small traders and retailers who were on the Active Taxpayers’ List and had cleared all dues for the years 2020 and 2021. Non-filers would be automatically charged double the amount.

Moreover, Pakistan has been unable to bring traders into the tax net for eight years. In Pakistan, a salaried individual pays more tax than a wealthy trader, highlighting inequity in the taxation system amid the silence of the International Monetary Fund (IMF). Since 2015, Ismail has become the third finance minister to reach an agreement with the traders and provide them with concessions.

According to data from the FBR, traders only paid Rs. 6 billion in taxes during the most recent fiscal year, and hardly 5,000 of them submitted annual tax returns.