ST being charged, collected through electricity bills: CA firm for allowing deposit on actual 'collection basis'

A leading chartered accountant firm has proposed Federal Board of Revenue (FBR) that the sales tax being charged and collected through electricity bills by power distribution companies from various categories of consumers be allowed to be deposited on actual 'collection basis.'
Sources said on Monday that Senior Partner AF-Ferguson & Co, Syed Shabbar Zaidi has proposed amendment for deposit of sales tax on 'collection basis' for WAPDA power distribution companies (DISCOs) and K-Electric Limited (KE). In this connection, a change has been proposed in the present provision of Rule 14 of Chapter III of STSP Rules, to the effect that the mechanism for deposit of taxes be changed from 'accrual basis' to 'collection basis.'
According to the communication of the chartered accountant firm to the FBR, in terms of section 3(IA) of the Sales Tax Act, 1990 (ST Act), where taxable supplies are made to a person who has not obtained registration number, there shall be charged, levied and paid a further tax at the rate of 2 percent of the value of taxable supplies. Furthermore, electrical energy supplied to domestic and agricultural consumers have been excluded from the purview of further tax vide SRO 648(1)/2013 dated July 9, 2013. This further tax is in addition to sales tax at standard rate ie 17 percent, extra tax and retail tax.
5 per cent extra tax is recoverable from unregistered and inactive consumers having commercial and industrial connections, whose bill in any month exceeds from Rs 15,000 under Section 3(5) of the ST Act read with SRO.509(1)/2013 dated June 12, 2013 and Chapter IVA of the Sales Tax Special Procedures Rules, 2007 (STSP Rules). For all commercial and practical reasons DISCOs/KE are depositing the said amount on receipt basis, it said.
CA firm said that 5 percent and 7.5 percent sales tax is recoverable from unregistered retailers on monthly bill up to Rs 20,000 arid exceeding Rs 20,000 respectively under Section 3(9) of the ST Act read with Chapter II of the STSP Rules. This tax is in addition to extra tax and further tax. As per Chapter XVI of the STSP Rules, sales tax charged at the rate of Rs 1.25 per unit of electricity consumed is required to be charged and collected by DISCOs/KE from every marble and granite manufacturers. This tax is in addition to the sales tax at standard rate ie 17 percent, extra tax and further tax.
As per Chapter XI of the STSP Rules, sales tax at the rate of Rs 9.00 per unit of electricity consumed is required to he charged and collected by DISCOs/KE from steel melters and re-rollers.
In respect of the said taxes, due to commercial and practical limitations, KE/DISCOs are depositing all the abovementioned taxes on 'collection basis', excluding further tax and sales tax on steel melters and re-rollers. The payment of such taxes on 'collection basis' is more logical/rational/equitable for the reasons discussed below. Under the present provisions of law, further tax, extra tax, tax on retails, tax at the rate of Rs 1.25 per unit of electric consumption on marble industry and sales tax in excess of standard rate from steel melters and re-rollers are not being treated as output tax, thus are not allowed to adjust from input tax claim.
Further, the FBR must appreciate that, KE/DISCOs are collecting various types of taxes in addition to the standard rate of 17 percent sales tax applicable on various categories of consumers, both registered and unregistered. These taxes are being collected by the distribution companies as helping hand of the federal government in order to achieve its objective of broadening of tax base and effective collection of taxes. In essence, these additional taxes are in punitive nature for unregistered category of consumers and distribution companies are working as helping agents of the FBR; besides the fact that our client not only face aggression from such consumers but recovery from such consumers is also affected adversely due to imposition of such taxes.
Moreover, such amount under the present law cannot be adjusted against the huge refunds due to DISCOs on account of excess input tax. Resultantly, DISCOs are tinder double jeopardy for paying extra tax out of its own pocket, notwithstanding that refund is due from the FBR.
Taking this into account, sales tax being charged and collected through electricity bills by KE/ DISCOs from various category of consumers, other than sales tax levied at standard rate of 17 percent be allowed to be deposited on actual collection basis. The KE is currently bearing the burden of paying Rs 200-250 million each month out of its own kitty due to deposit of sales tax at standard rate of 17 percent on accrual basis.
In this context, CA firm has proposed a change in the present provision of Rule 14 of Chapter III of STSP Rules, to the effect that the mechanism for deposit of aforementioned taxes be changed from 'accrual basis' to 'collection basis', CA firm added.