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EDITORIAL: The government’s decision to impose a tax of 7.5 percent on electricity bills in excess of 25,000 rupees on domestic consumers that are non-filers is at best inexplicable and at worst reflective of a mindset divorced from reality. First off, without a doubt the government’s rationale is premised on forcing the rich non-filers to begin to file their returns. One would advise the Federal Board of Revenue (FBR) to take cognizance of the fact that widening the difference in the withholding tax payable by filers and the non-filers (a policy decision that dates from the previous administration) did increase the number of filers significantly but sadly as most of the filers were exempt from tax/filing (widows, students, pensioners, etc.) there was no appreciable increase in revenue collection.

Second, this levy cannot possibly apply to those who rent as the bill would be in the name of the landlord who may not be a filer while the tenant may well be; this would imply that each month the tenant would seek an adjustment with the distribution company, a time-consuming activity, and/or go to court to seek a long-term redressal of his legitimate grievance. In this context, it is relevant to note that surveys indicate that around 22 percent of all Pakistanis live in rented accommodation and while the levy of this withholding tax is unlikely to apply to most tenants yet they would have to pay because the landlord is not a filer particularly during summer months when there is increased consumption of electricity. This tax is an inherently an inane attempt to increase revenue, critical at this moment in time when the government is in the process of formulating alternate plans to eliminate the circular debt to be presented to the World Bank, the lead agency in this sector, for approval. This of course begs the question as to whether the amount would be remitted to the federal government or be dedicated for use by the sector.

Third, the Lahore Electric Supply Corporation on its website notes that “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.” This condition may be an attempt to take account of the electricity consumer being different from the one in whose name the bill appears but unfortunately this would significantly increase the workload of the staff of the distribution companies whose performance is widely regarded as a contributory factor to the overall poor sectoral performance and the rise in the circular debt to over 2.5 trillion rupees today.

There is, therefore, an urgent need to analyse the efficacy and implementability of suggested taxes by the FBR in its unending drive, under constant pressure from the Ministry of Finance, to raise tax collections; but the government must begin to move away from its continued reliance on low hanging fruit and come up with the much touted ‘out of the box’ strategy to mobilize increased tax collection that would tax the ability of the tax collectors rather than present practice of taxing at source through tax withholding on presumptive basis and minimum taxation.

Copyright Business Recorder, 2021


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