ISLAMABAD: A Senate finance panel on Wednesday recommended the government to waive off 17% sales tax on electricity bills of domestic consumers, as they are paying almost half a dozen taxes and three types of surcharges on their bills.
While asking the government to abolish the sales tax, the Senate Standing Committee on Finance and Revenue termed it unjustified.
“The standing committee unanimously recommends the government to waive off 17% sales tax charged on the electricity bills of households,” said Standing Committee Chairman Senator Saleem Mandviwalla. The PML-N members did not oppose the recommendation.
However, it is unlikely that the government will pay heed to the parliamentary panel’s request, as collecting taxes through bills has become an easy source for the Federal Board of Revenue to generate taxes. In the event of low revenue collection, the government resorts to indirect taxes as means to cover up for the shortfall.
In the last fiscal year 2015-16, the government collected Rs40.4 billion worth sales tax from electricity consumers, which is 72% or Rs17 billion higher than the previous year.
The FBR also owes Rs106 billion sales tax refund to the Ministry of Water and Power on account of sales tax collected over and above the actual recoveries of the bills. The Ministry of Water and Power is unable to collect about Rs30 out of every Rs100 due to line and recovery losses, but sales tax is charged on the actual billed amount.
The government is punishing the voiceless poor people by extracting money from them through electricity bills, said Senator Col retired Syed Tahir Mashhadi of the MQM – the mover of the proposal.
Before the PML-N government came into power, there was only one type of indirect tax on electricity consumers. However, the ruling party has increased the number to five during the last three years in addition to increasing the number of surcharges from one to three.
It is charging 17% sales tax from all types of electricity consumers – a rate that was 16% before the PML-N came into power. In the last fiscal year, it collected Rs26.6 billion under this head, which was about two times more than the collection of 2014-15, according to the FBR.
From June 2013, the PML-N government has also been charging 5% extra tax from industrial and commercial consumers whose electricity bill exceeds Rs15,000 a month and are not registered with the FBR.
“Our national tax compliance level is very low and we are trying to bring people in the tax net by levying additional taxes on them,” said FBR Chairman Nisar Mohammad Khan. In addition to 17% standard sales tax rate, 5% extra tax, the government has also been charging 2% further sales tax since June 2013 from those industrial consumers who sell goods to non-registered buyers.
This is tantamount to punishing the consumers for the FBR’s failure to register them. The FBR chairman admitted that all indirect taxes were affecting the people. He said that the 2% further tax had been imposed in the 1990s but discontinued in 2004-05.
Further, the government is charging Rs4 sales tax per unit of electricity consumed by steel melters and re-rollers. It is also charging up to 7.5% sales tax on the electricity bills of retailers from last two years.
The standing committee did not discuss three types of electricity surcharges due to absence of representative of Ministry of Water and Power; financing cost surcharge, a tariff rationalisation surcharge and Neelum Jhelum surcharge.
According to a report, the government extracted an additional amount of over Rs200 billion from the electricity consumers on account of these surcharges.