ISLAMABAD: After a prolonged period of two years, the government has decided to implement an old order of the Federal Tax Ombudsman (FTO) to discontinue collection of electricity duty (ED) to provide relief to consumers and taxpayers.
In December 2023, own motion investigation under Section 9(1) of the FTO Ordinance, 2000, was initiated against illegal tax withholding under Section 235 of the Income Tax Ordinance, 2001 by power distribution companies, and FBR’s apathy.
Now, Federal Minister for Power Division Sardar Awais Ahmed Khan Leghari has written letters to all the chief ministers about the decision to discontinue the collection of electricity duty through electricity bills starting July 2025.
The FTO had directed the Federal Board of Revenue (FBR) to review whole regime of ED and taxes calculated on electricity bills.
First, such decision by FTO in the case of LESCO Lahore was issued in November 2023 which was challenged by FBR at President Secretariat. President of Pakistan upheld the FTO’s decision in March 2024.
According to the order of the FTO dated December 2023, “All consumers/ taxpayers are being burdened with excessive charges.”
The FTO order said that the ED is a provincial duty and is levied to all consumers ranging from 1.0 percent to 1.5 percent of all variable charges, included in the electricity bill.
The FTO had received a complaint, wherein, some consumers of Islamabad Electric Supply Company (IESCO) agitated against unjust charging of taxes in monthly bills for the month of August 2023. The complaint papers were examined and cross matched with legal provisions, as well as, withholding tax chart uploaded on FBR’s official website.
It was observed that IESCO has been charging and collecting tax withholding in cases where monthly bills are even much less than the prescribed threshold of Rs25,000 per month. It was further observed that while income tax has been explicitly charged and collected illegally, the rationale and legal cover of remaining levies also need to be looked into.
According to the FTO’s order, the FBR should constitute a committee, comprising members from the Large Tax Office (LTO), Islamabad, the IESCO and the Punjab Energy Department to work out a strategy, whereby, whole regime of ED and taxes calculated thereon is reviewed so as to provide some relief to ordinary consumers and the taxpayers.
The discrepancies regarding non-transparent charging of electricity duty from all consumers, especially from residents of Islamabad Capital Territory (ICT) may be taken up by FBR with the concerned authorities for removal of discrepancy, the FTO said. While examining the different components of billing it has been observed that ED is being levied across the board, on all consumers, the FTO said.
The ED charged and collected by Discos is not being timely remitted to Provincial Energy Departments, within the given timelines. The power distribution companies; i.e., LESCO, FESCO, MEPCO, IESCO, and GAPCO, operating in the province of Punjab tend to withhold ED collection for years and only after the reconciliation with the Government of Punjab and after adjustment of all unpaid bills of different provincial government departments, the remaining amount of ED is paid. This reconciliation takes years and years.
Punjab Energy Department has unearthed thousands of fake and dormant meters which were being misused by Discos to inflate provincial government’s electricity bills. In other words, ED charged by the legislature to generate funds for further generation of power is being used to pay the current bills of provincial governments.
If the total unpaid ED is calculated across Pakistan, the figure runs into a staggering amount. This is how an ordinary taxpayer and common consumer are being scammed and provincial governments defrauded. All federal taxes worked out against the value of ED thus tantamount to excessive and unjust taxation and reflect clear incidence of maladministration, the FTO order added.
Later, the president of Pakistan has confirmed FTO’s decision to alleviate miseries of power consumers by rationalising income tax and sales tax on electricity bills of low-income earners across the country.
The FTO’s investigation revealed a uniform imposition of ED on consumers, regardless of income levels, exacerbating the financial burden on taxpayers. Furthermore, discrepancies were noted in the timely remittance of ED to Provincial Energy Departments, with instances of misuse and misallocation of collected funds.
Of particular concern was the absence of clarity regarding the legal status of ED collection by distribution companies, raising questions about the legitimacy of associated taxes levied by the FBR. Additionally, revelations of cross-provincial discrepancies and outstanding dues highlighted systemic deficiencies in the taxation framework.
The president’s decision to uphold the FTO’s directive underscores the imperative of addressing the unjust taxation burden on citizens.
It emphasises the need for collaborative efforts among stakeholders to reformulate taxation policies, ensuring fairness and alleviating the financial strain on taxpayers.
Copyright Business Recorder, 2025