ISLAMABAD: Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to constitute a joint committee to re-evaluate the entire regime of electricity duty and taxes calculated thereon.
The committee will include representatives from the Regional Tax Office (RTO) Peshawar, Peshawar Electric Supply Company (PESCO), and the Khyber Pakhtunkhwa Energy Department.
This development comes after the FTO took suo motu notice of complaints regarding the unlawful collection of taxes by distribution companies (DISCOs) under section 235 of the Income Tax Ordinance, 2001. The FTO noted FBR’s indifference to the matter and emphasized the need to provide relief to ordinary consumers and taxpayers who have been subjected to undue financial burden in the name of electricity-related charges.
The complaint, which triggered the inquiry, was filed by a PESCO consumer, Israruddin, who contested the imposition of various taxes on his electricity bill for August 2023. Claiming financial hardship, he appealed for an exemption from income tax and associated levies.
Upon investigation, the FTO observed serious discrepancies. Deputy Commissioner Inland Revenue (DCIR) Usman Asif defended the FBR’s position, stating that income tax had not been applied on bills below Rs. 25,000 and that GST was charged according to law. However, the complainant’s authorized representative, Zulfiqar Ali of Rafaqat Babar & Co, could not provide adequate justification for the inclusion of electricity duty (ED) in the bill.
The inquiry revealed that ED is being levied across all consumer categories by DISCOs under the outdated West Pakistan Finance Act, 1964, now renamed the Punjab Finance Act, alongside Article 157(2)(b) of the Constitution. This law dates back to the “One Unit” era when provinces were empowered to raise funds for power generation by imposing a duty on consumed electricity units.
However, following the NEPRA Act of 1997 and restructuring of the power sector, the legal basis for this provincial levy has become questionable. While NEPRA licensees are allowed to collect federal taxes, they cannot lawfully collect ED on behalf of provinces without specific provincial authorization. As this legal ambiguity remains unresolved, the collection of ED continues unchecked, undermining taxpayers’ rights.
Further investigations uncovered alarming irregularities. DISCOs were found withholding collected ED for years and only remitting payments after lengthy reconciliations with provincial departments. The Punjab Energy Department reported widespread misuse, including fake and dormant meters to inflate billing and fund provincial budgets with electricity duty meant for infrastructure development.
Even IESCO has been implicated for imposing provincial electricity duty on Islamabad Capital Territory consumers. Notably, K-Electric currently owes Rs. 21 billion in unpaid ED to the Sindh Energy Department.
This unchecked system has led to excessive and unjust taxation. Federal taxes are being calculated on inflated electricity duty values, compounding the financial strain on the public. The FTO termed this “clear maladministration” and highlighted that the issue has already been upheld in multiple complaints by the President of Pakistan via a ruling dated March 4, 2024.
The FTO’s directive calls for a comprehensive legal and procedural review to ensure that the imposition and collection of electricity duty align with current laws and do not exploit consumers. The outcome of the committee’s work may determine the future of provincial levies in electricity billing and could set a precedent for nationwide reforms.
