No proposal to remove advance income tax on power bills

ISLAMABAD (December 11 2002) : The government is not considering any proposal to withdraw advance income tax charged on electricity bills of commercial/industrial consumers as the levy is an adjustable tax and cannot be abolished under the law, official sources told Business Recorder on Tuesday.

The tax is being paid as per slabs notified by the tax authorities for commercial and industrial consumers.

The impression created by Water and Power Development Authority (Wapda) that 23 percent advance was secretly slapped last year was not based on facts as the levy was charged in the past on lump sum basis. With the introduction of different slabs, the tax is charged on the value of electricity consumed by industrial and commercial consumers.

To put the things in right perspective, 23 percent advance income tax is not charged from all consumers. The maximum slab of advance tax for commercial/industrial consumers is Rs 1000 in case the amount of electricity bill exceeds Rs 6000. On the contrary, most of the commercial/industrial concerns consume much more power and their bills exceed the last slab, which shows that the units were actually paying less than one percent of the (23 percent) advance tax.

The authorities were of the view that “If Wapda has some reservations on the advance income tax rates, the utility should directly contact the concerned tax department for clarification, instead of writing to other ministries”.

Under section 235 of the Income Tax Ordinance 2001, advance tax will be charged on the amount of electricity bill of a particular commercial or industrial consumer.

If the amount of electricity bill does not exceed Rs 400, the rate of tax is Rs 60; exceeds Rs 400 but does not exceeds Rs 600, tax is Rs 80; exceeds Rs 600 but does not exceed Rs 800, Rs 100; exceeds Rs 800 but does not exceed Rs 1000, Rs 160; exceeds Rs 1000 but does not exceed Rs 1500, Rs 300; exceeds Rs 1500 but does not exceeds Rs 3000, Rs 450; exceeds Rs 3000 but does not exceed Rs 4,500, Rs 600; exceeds Rs 4500 but does not exceed Rs 6000, Rs 750; and the rate of advance tax is Rs 1000 where the amount of electricity bill exceeds Rs 6000.

Last month, it was reported that Wapda has strongly demanded of the government to abolish this levy and held federal government responsible for the hardships being faced by the domestic, commercial and industrial consumers paying inflated taxes ie 23 percent advance income tax + 15 percent general sales tax (GST).

The utility said, “Our commercial consumers have to pay 23 percent on the cost of electricity as advance income tax, besides 15 percent GST, taking the total up to 38 percent.”

Tax officials were surprised to note the percentage given in Wapda's plea as the highest slab of tax is Rs 1000. Furthermore, the domestic consumers are already exempted from sales tax.

Sources said that Wapda could not link the withdrawal of advance income tax on electricity to bills of gas companies on which advance tax has already been abolished.

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