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KESC must pay sales tax on total billed amount

ISLAMABAD (April 07 2006): The Karachi Electric Supply Corporation (KESC) should pay sales tax on the total amount billed to its consumers, as the Independent Power Producers (IPPs) are depositing sales tax under the same arrangement.

CBR officials told Business Recorder here on Thursday that the IPPs being private companies are paying sales tax on the actual power supplied by them. IPPs are strictly following the Value Added Tax (VAT) laws and internationally accepted tax practices for payment of sales tax.

As the KESC would no longer remain a government entity following its privatisation, it should pay sales tax on the total amount billed to its consumers. On the other hand, the KESC is demanding special treatment and want to pay sales tax on the actual amount of bill collected from its consumers. The corporation wanted privileges like Wapda to pay sales tax on the collected amount of bills.

Sources said that the new sales tax collection mechanism on power consumption for the KESC would improve its revenue collection. Once the KESC accepted the new mechanism, there would be pressure on the corporation to recover the billed amount.

Officials admitted that both the CBR and the KESC were still divided over the sales tax collection procedure. Recently, another meeting was convened on the issue, which ended without any agreement.

According to the CBR officials, the board has not changed its stance and would not give special treatment to the KESC. The KESC and Wapda have separate domain of electricity distribution. KSEC is dealing with the power consumers in Karachi, whereas Wapda is not operating in Sindh. If Wapda was operating in Karachi and enjoying special treatment for payment of sales tax, then the KSEC could have demanded special treatment.

The officials said that it is a global practice that the power distribution companies pay sales tax on the bills issued to their consumers. There is no concept of special dispensation to the power companies anywhere in the world. The government had allowed the KESC to pay sales tax on the actual amount of bill collected from its consumers keeping in view line losses/thefts and overall financial position of the corporation in the past.

The KESC has been privatised, but the corporation is not ready to accept the CBR stance and wants to pay sales tax as per the previous system. Similarly, the government had also allowed Wapda to pay sales tax on the amount of bill collected from its consumers to reduce burden on the government entity.

They said that KSEC has not approached any court against the CBR to contest the new general sales tax (GST) collection mechanism, as they have no legal backing to support their argument.

Officials said that the CBR has again demanded Rs 3 billion of past liabilities, whereas the corporation is reluctant to pay the amount. This amount mainly relates to the pending cases where the KESC has billed the amount to the consumers, but was unable to recover the same.

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