The power distribution companies (DISCOs) would now have to pay “turnover tax” on the federal government’s subsidy of billions granted to electricity consumers.
In this regard, the Lahore High Court (LHC) has issued an order in favor of the Federal Board of Revenue (FBR).
The LHC has rejected the stance of the power distribution companies that the reduced tariff notified for certain consumers to provide financial support is not part of the revenue receipts. The LHC has also dismissed orders issued by the Appellate Tribunal (Inland Revenue) which were earlier decided by the power distribution companies.
LHC declared that “it is held that the amount recovered from consumers as well as subsidy amount constitute revenue receipts cumulatively liable to tax and comprised in the definition of ‘turnover’, it added.
The section 113 of the Ordinance is a regime of taxation based on a minimum tax on the income of certain persons. It applies to a resident company’ permanent establishment of a non-resident company’ an individual having a turnover of Rs. 300 million or above in the tax year etc.
LHC observed that it is an undeniable fact that the sale of goods takes place to the consumers and an important aspect of the term ‘turnover’ as defined in section 113(3)(a) of the Ordinance is for the sale of goods to take place from which gross receipts are derived.
It is common ground between the parties that the respondents/taxpayers are public limited companies engaged in the business of distribution of electricity (DISCOs).
The DISCOs contended before the Assessing Officer that Tariff Differential Subsidy (TDS) was a relief provided by the Federal Government to different categories of consumers of electricity by notifying reduced rates of electricity.
It is undisputed that TDS is contributed by federal government and on that account reduced tariff is notified for certain consumers to provide financial support and in fact, no actual sale is made by the DISCOs to the government.
With the exclusion of TDS from sales, DISCOs contend that they are incurring gross losses and therefore subsidy cannot be made a charge of minimum tax. In sum, DISCOs submit that minimum tax under section 113 of the Ordinance is chargeable on the amount billed and received from the consumers of electricity while the amount received as subsidy provided by the federal government to distribution companies was not chargeable to minimum tax.
LHC order added that it is an undeniable fact that the sale of goods takes place to the consumers and an important aspect of the term ‘turnover’ as defined in section ll3(3)(a) of the Ordinance is for the sale of goods to take place from which gross receipts are derived. The evasion of tax on this basis would be tantamount to distortion of the concept of subsidy which is a matter between the consumers and the federal government.
