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LAHORE: The Tariff Differential Subsidy (TDS) granted by the federal government to the power distribution companies (Discos) is liable to tax, said sources.

They said the Discos are under the wrong impression that the TDS is a relief to different categories of consumers of electricity to provide financial support and in fact no actual sale is made by the Discos to the government. Managements of these Discos further contend that with the exclusion of TDS from sales, they are incurring gross losses; therefore, subsidy cannot be made a charge of minimum tax. According to them, the minimum tax is chargeable on the amount billed and received from consumers while the amount received as subsidy is not chargeable to minimum tax.

According to the sources, the issue surfaced when a field formation of Federal Board of Revenue (FBR) charged minimum tax against a Disco in the province of Punjab by inclusion of subsidy in other income as part of the turnover of it. The management of the Disco challenged the departmental action on the ground that gross receipts have to be derived from the sales of goods whereas in the case of the portion which is reimbursed by the federal government there is no sale of goods.

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But the department termed it an enormous view based on misconstruction of the entire transaction, as the federal government is a necessary party to the entire architecture and the sales of goods made to the consumers is based on the subsidy provide by the federal government. The only difference is that the moneys recovered in respect of sale of goods come from two different sources. The department stressed that subsidy is not given by the federal government in favour of the Discos but is handed out to the consumers. It further maintained that the federal government has given a targeted subsidy to recover the cost of electricity. Since it cannot be recovered from the consumers, the burden has to be shared by the government. Yet, the overall revenue requirement of Discos must not be adversely impacted, therefore, this arrangement.

Accordingly, said the sources, the Disco failed to prove its viewpoint and left with no option but to pay tax against the whole of turnover, including the amount recovered from the consumer, as well as, subsidy from the federal government.

Copyright Business Recorder, 2024

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