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ISLAMABAD: The Federal Board of Revenue (FBR) has launched an enforcement drive against power distribution companies (Discos) for recovery of “turnover tax” from the Discos.

Under the Board’s recovery drive against power distribution companies, the FBR has added federal government’s subsidy granted to electricity consumers into revenue receipts for charging “turnover tax”.

In this regard, the FBR has issued instructions to the relevant Chief Commissioners Inland Revenue (IR) in the light of a new judgement of Lahore High Court.

According to the order of the LHC, “it is held that the amount recovered from consumers as well as subsidy amount constitute revenue receipts cumulatively liable to tax and comprised in the definition of ‘turnover’,” it added.

The LHC has also dismissed orders issued by the Appellate Tribunal (Inland Revenue) which were earlier decided by the power distribution companies.

The section 113 of the Ordinance is a regime of taxation based on minimum tax on the income of certain persons. It applies to a resident company ‘permanent establishment of a non-resident company’ an individual having turnover of Rs300 million or above in the tax year etc.

The FBR’s instructions said the necessary directions have been issued to the Commissioners Inland Revenue (IR) concerned to take action in such cases expeditiously in the light of LHC Judgment for prompt recovery of due taxes and state’s revenue.

The FBR’s instructions to the field formations revealed that through the reference, the department raised the following questions of law for answer before the LHC:

(I); Whether on the facts and in the circumstances of the case, the tribunal has not misinterpreted the subsidy granted by the Federal Government for taxpayer consumer not effecting the supply, sales oftaxpayer required to be added in the turnover under section 113 of the Income Tax Ordinance, 2001?

(ii); Whether in the facts and circumstances of the case, the Tribunal was justified to hold that the subsidy cannot be added as turnover for the purposes of charging of tax u/s 1 13 of the Income Tax Ordinance, 2001?

(iii); Whether on the facts and in the circumstances of the case the tribunal has not misinterpreted the subsidy in question which is exempt from levy of tax under clause 102-A of the Part-I of the 2nd Schedule to the Income Tax Ordinance, but cannot be excluded from the turnover under section 113 of the Income Tax Ordinance, 2001?

The court has decided the above issues in favour of the department along with 21 income tax references filed by the department as well as taxpayers, FBR said.

LHC observed that it is an undeniable fact that sale of goods takes place to the consumers and important aspect of the term ‘turnover’ as defined in section 113(3)(a) of the Ordinance is for the sale of goods to take place from which gross receipts are derived.

It is common ground between the parties that the respondents/taxpayers are public limited companies engaged in the business of distribution of electricity (Discos).

The Discos contended before the Assessing Officer that Tariff Differential Subsidy (TDS) was a relief provided by Federal Government to different categories of consumers of electricity by notifying reduced rates of electricity. It is undisputed that TDS is contributed by federal government and on that account reduced tariff is notified for certain consumers to provide financial support and in fact no actual sale is made by the Discos to the government.

With the exclusion of the “TDS” from sales, Discos contend that they are incurring gross losses and therefore subsidy cannot be made a charge of minimum tax. In sum, Discos submit that minimum tax under section 113 of the Income Tax Ordinance is chargeable on the amount billed and received from the consumers of electricity while the amount received as subsidy provided by the federal government to distribution companies was not chargeable to minimum tax.

Copyright Business Recorder, 2024

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Jahanzeb Mahar Jan 02, 2024 05:30pm
Dear Publisher, It is to inform you that the section 113 of ITO, 2001 is applicable on Individual Having Turnover Hundred million or more in any tax year from 2017 and onwards.
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