The government has made electricity 7.5 percent more expensive for domestic non-filer consumers whose monthly consumption is over Rs 25,000 per month. Lahore Electric Supply Company (Lesco), on its website, has intimated its consumers about the new tax (withholding tax) to be charged from July 1, 2021.
“Dear customers! Government of Pakistan has imposed 7.5 percent tax on electricity bills of over Rs 25,000 monthly. If you are a filer, immediately send your reference number along with identity card number on 8118, so that you can be exempted from this tax (withholding tax),” said Lesco. The power utility has not made it clear if 7.5 percent tax is applicable to only domestic consumers or commercial consumers also fall in this category.
Recently, FBR issued Income Tax circular 2 of 2021, according to which government slashed the threshold of monthly electricity bills for withholding tax (WHT) on electricity consumption from 75,000 to 25,000 from domestic users not appearing on the Active Taxpayers’ List.
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 exceeds Rs 25,000 per month due to use of air conditioners.
Previously, WHT was collected from domestic electricity consumers irrespective of their return filing status at a rate of 7.5 percent if the monthly bill exceeded Rs75,000.
According to tax experts, reduction in threshold from 75,000 to 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 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 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.
Insiders in Discos argue that they would have 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 transfer of his electricity connection in the name of the tenant. This will end up in unnecessary hardship for the existing taxpayers.
“There will be additional problems for persons who are not required to file tax returns as they are deriving income exempt from tax such as agriculturists,” said one of the officials of a Disco on condition of anonymity.
