Many shop owners and businesses notice an income tax line on their electricity bills. This is an advance tax collected by DISCOs on behalf of the Federal Board of Revenue (FBR) under Pakistan's income tax law.
Who pays income tax through the electricity bill?
- Mainly commercial and industrial consumers.
- Generally only when the bill amount is above a certain threshold set in the law.
- Rates and thresholds are set in the Income Tax Ordinance and revised through federal budgets.
Residential consumers have also faced advance tax on bills above high thresholds in certain periods, especially non-filers. Check the current rules.
Filers and non-filers
The FBR keeps an Active Taxpayer List (ATL) of people and businesses that file income tax returns. Consumers not on the ATL often face higher rates or extra taxes on their bills. Being a filer can therefore lower the tax charged on your electricity bill.
Is it a final tax?
Income tax collected through electricity bills is usually an adjustable advance tax. If you file your annual return, you can claim credit for the amount paid through bills against your total tax liability. Keep all bills as proof.
Further tax and extra tax
These are sales tax add-ons, not income tax, but they often appear alongside:
- Further tax: for consumers not registered for sales tax.
- Extra tax: for certain commercial consumers not on the ATL.
How to reduce taxes on your commercial bill
- File your income tax return and make sure you appear on the ATL.
- Register for sales tax if your business is required to.
- Link your CNIC/NTN and STRN to your electricity connection through the DISCO so the system recognises your status.
- Keep bills for claiming tax credit.
Example
A shop's bill before taxes is Rs 30,000. If the shop owner is a non-filer, the bill may include income tax plus extra tax, adding a noticeable amount. After filing returns and getting on the ATL, the same shop may pay less tax on future bills.
Disclaimer
Tax rules change through budgets and FBR notifications. This article explains the general idea and is not tax advice; consult a qualified tax adviser for your case.