How FBR’s indirect taxes on electricity bills fuel inflation in Pakistan?

ISLAMABAD: One of the primary reasons for high electricity bills in Pakistan is the indirect taxes imposed by the Federal Board of Revenue (FBR).

According to official data, the FBR collects approximately Rs950 billion annually from taxes on electricity bills.

The FBR imposes these indirect taxes on electricity bills to meet its annual revenue targets. The general sales tax (GST) constitutes the majority of these taxes, but other taxes are also included.

Tax experts believe that the FBR imposes these taxes on electricity bills to meet its overall revenue targets. However, they argue that this practice contributes to inflation in the country.

Breakdown of Taxes on Electricity Bills

According to documents, the government collects up to Rs950 billion annually through electricity bills. Currently, there are eight types of taxes embedded in electricity bills, resulting in consumers to pay an average of Rs9 per unit in taxes, said a report in Urdu News.

The taxes on electricity bills include GST, income tax, advance income tax, extra sales tax, electricity duty, and even a TV fee.

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Official data shows that Rs390 billion of these taxes go to the federal government, while Rs560 billion are allocated to the provinces.

The documents reveal that Rs14 billion is collected annually as TV fees through electricity bills. Additionally, the 1.5 per cent electricity duty generates Rs53 billion in revenue each year for the FBR.

The FBR also collects Rs9 billion through a 7.5 per cent retailers’ sales tax and Rs54 billion through extra sales tax. An additional Rs13 billion is gathered as an additional tax on electricity bills.

Moreover, the FBR collects Rs4 billion from non-filers in the form of a 7.5 per cent advance tax on bills exceeding Rs25,000. The government also garners Rs98 billion through an income tax rate of 10 per cent to 12 per cent.

According to official documents, the FBR imposes an 18 per cent sales tax on domestic, commercial, industrial, and agricultural consumers.

Economist Dr Qaiser Bengali that Pakistan’s tax system is akin to an “extortion system,” exploiting the public.

He explained that the FBR imposes taxes wherever it sees an opportunity, exploiting the fact that citizens are compelled to pay their electricity bills.

Regarding the overall performance of the FBR, Dr Bengali noted that the agency has consistently failed to prevent tax leakage and has been unsuccessful in targeting the right areas for tax collection.

He further commented on the high rate of indirect taxes in Pakistan, such as the GST, which burdens the economy and businesses, especially in challenging economic conditions.

On the issue of taxes on electricity bills, Dr Bengali added that it is not the role of the state to impose taxes forcefully. The inclusion of eight different taxes in electricity bills is clearly an exploitative measure.