The government is considering increasing the withholding tax rate on monthly electricity bills of commercial consumers by at least 100 per cent in a bid to bag Rs18 billion in additional revenue from retailers who are not paying due taxes and are protected by the presumptive tax regime.
Finance ministry sources told The Express Tribune a budget proposal of increasing the withholding tax from 10 per cent to 20 per cent was under consideration. The government is expecting to generate an additional Rs18 billion from 4.3 million commercial consumers of electricity. During the last financial year, the government collected Rs15.4 billion withholding tax on electricity bills. This move, if implemented, will effectively, more than double tax revenues from power consumers.
Owing to complaints of under-assessment, the government had placed retailers and commercial importers under the presumptive tax regime and charges tax at fixed rates on their sales and imports. The fixed taxes are considered their final liability and the retailers are not subject to general assessment of their income. The government charges tax at various rates, though nominal and stresses more on getting taxes through measures like withholding tax.
The figure of registered retailers might sound unbelievable but according to the Federal Board of Revenue sources, there are only 849 registered retailers in the country. Out of this 521 are covered under the general assessment scheme and pay 17 per cent general sales tax. The remaining 328 are covered under the presumptive tax regime.
Retailers having up to Rs5 million annual sales are exempt from filing annual tax returns, but those having sales above Rs5 million pay 0.5 to 0.75 per cent of their turnover as final tax liability.
Last year, the 521 registered retail units paid Rs666 million in taxes. Out of this, a major chunk of Rs515 million was paid by the Utility Stores Corporation, a state-owned outlet. The remaining 328 retailers paid a mere Rs145 million in taxes. Interestingly only Rs54 million was paid by the Canteen Stores Department of the Armed Forces.
Sources said the government is likely to continue with the presumptive tax regime and will follow a policy of taxing them indirectly. They said in order to lure retailers to get themselves registered, the government may offer a 14 per cent sales tax rate to registered retailers. This would lead to comparatively cheaper goods at registered chains, encouraging non-registered persons to opt for documentation.
Sources said there is another proposal under consideration for getting the retailers and industrialists to cough up more revenues. According to this proposal, the sales tax rate for commercial electricity consumers should be increased from 17 per cent to 25 per cent and withholding tax should be kept at 10 per cent. For the industrial electricity consumers, the sales tax rate should also be fixed at 25 per cent with a condition to withdraw five per cent withholding tax being charged through monthly electricity bills.
Currently, for the commercial electricity consumers 10 per cent withholding tax is the full and final liability but the industrial electricity consumers can get adjustments against five per cent withholding tax.
Published in The Express Tribune, May 18th, 2011.
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