The Federal Board of Revenue (FBR) has no foolproof mechanism to ensure that a 7.5 percent withholding tax on electricity bills of over Rs. 25,000 per month isn’t charged to filers of income tax returns.
There is no coordination between the FBR and the power distribution companies in this regard.
The FBR has collected withholding tax (under section 235 of the Income Tax Ordinance) of Rs. 71.412 billion on electricity bills during 2021-22 against Rs 51.264 million 2020-21, reflecting an increase of 39.3 percent.
The withholding tax collection under section 235 of the Income Tax Ordinance totaled Rs. 53.719 billion during the first half (July-December) of 2022-23 against Rs. 32.637 billion in the same period of 2021-22, reflecting an increase of 64.6 percent.
According to the tax experts, the FBR had slashed the threshold of monthly electricity bills for withholding tax (WHT) on electricity consumption from Rs. 75,000 to Rs. 25,000 from domestic users not appearing on the Active Taxpayers’ List from July 1, 2021.
There are numerous domestic consumers across the country, who neither have a job nor have business and hence, do not file returns, but their bills in summer exceed Rs. 25,000 per month due to the use of air conditioners.
The reduction in threshold from Rs. 75,000 to Rs. 25,000 per month at first sight appears praiseworthy as persons paying high amounts as utility bills should be filing their tax returns and if not then they must pay the penalty in the form of this WHT.
However, an in-depth analysis revealed several problems in the decision. Firstly, the electricity connections in a large number of cases are not in the names of the persons actually using the residences.
In the case of rented houses and apartments, the connection is in the name of the landlord but the bill is paid by the tenant. Similarly, even in the case of self-occupied inherited residences, the connection is in the name of the father or even the grandfather of the present resident.
The person actually residing may be a tax filer but the connection can be in the name of a person who is not on the Active Taxpayers List and the resident will be subjected to the withholding tax.
DISCOs have failed to undertake a massive drive to ensure that the electricity connections are transferred in the names of the actual residents. Even then it may not be possible to ensure the desired results as no landlord will accede to the transfer of his electricity connection in the name of the tenant. This will end up in unnecessary hardship for the existing taxpayers.
