Withholding tax on electricity bills may be reduced

[LRE]

Withholding tax on electricity bills may be reduced
RECORDER REPORT
ISLAMABAD (August 21 2008): The Federal Board of Revenue (FBR) is likely to reduce withholding tax on electricity bills exceeding Rs 20,000 per month for all commercial and industrial consumers to reduce their cost of production. Sources told Business Recorder on Wednesday that the board is seriously considering this proposal in view of representations made by the trade community against the higher rate of withholding tax.

In this connection, the FBR has issued instructions to the director-general, Large Taxpayer Units (LTUs) and the Regional Tax Offices (RTOs) to submit solid proposals for reduction in tax rate where monthly electricity bill is exceeding Rs 20,000.

The DGs should also workout the revenue impact taking into account the reduced rate of withholding tax on electricity consumed by commercial consumers, the instructions added. Sources said that the FBR had estimated to collect Rs 6.5 billion from withholding tax on power consumption by the industrial sector. As a result of decrease in withholding tax rate, the target of Rs 6.5 billion would be brought down during the current financial year.

The final reduced rate of withholding tax would be finalised in view of DG's recommendations and revenue implications. It has been reported to the FBR that the imposition of extraordinary higher amount of 10 percent withholding tax is creating liquidity problems for the commercial consumers.

This rate of taxation is higher where every commercial consumer has to pay the levy. A large number of commercial and industrial consumers are receiving electricity bills above Rs 20,000 monthly. If a commercial entity has received bill of Rs 0.2 million per month, the withholding tax would be Rs 20,000. On annual basis, huge amount has to be paid by the consumer.

Sources said that the retailers and wholesalers constitute 19.2 percent of GDP, but contribution of this sector towards income tax is not more than 2 percent, which obviously means under-taxation. Previously, withholding tax on electricity bills of commercial and industrial consumers was collected every month at the rates ranging from Rs 60 to Rs 2,000 depending upon the amount of bill. The average rate of withholding tax collected on electricity bills up to Rs 4,500 was about 14 percent of the bill amount whereas this percentage on the higher amount of bills up to Rs 20,000 per month was around 9 percent.

Under previous provisions, the withholding tax collected in respect of non-corporate taxpayers was treated as minimum tax whereas for corporate taxpayers, it was adjustable against final tax liability.

To rationalise this regime, now withholding tax @ 10 percent of the bill amount exceeding Rs 20,000 per month has been collected from of all commercial consumers. Sources said that the board may reduce the rate of this withholding tax which was imposed in Budget 2008-09.

Copyright Business Recorder, 2008

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