ISLAMABAD: As power-sector refunds pile up to Rs377 billion, the government is working on a plan to make an amendment through the finance bill to charge general sales tax (GST) on the basis of actual collection instead of the bills issued by power distribution companies.
The power sector is facing liquidity crunch as the Federal Board of Revenue (FBR) has been charging GST on the billed amount rather than actual collection. The government gives subsidy to consumers using up to 300 units per month and the FBR also charges sales tax on the subsidised amount.
The Power Division is of the view that the FBR should charge sales tax on the amount received from power consumers. The FBR charges tax on 100% of the billed amount whereas the recovery of bills stands at around 90%.
The remaining 10% bills could not be collected by the power distribution companies due to theft and technical losses but the FBR charges sales tax on them as well.
Sources told The Express Tribune that the issue was tabled before the Cabinet Committee on Energy (CCOE) for its resolution. The committee directed the FBR to pay refunds of Rs330 billion on account of GST.
Briefing the meeting, the Power Division said tax refunds were also a factor behind the liquidity crunch in the power sector.
The FBR gets heavy cash flow from the power distribution companies, which act as collecting agents for the revenue board with overall collection of 90.5% including all taxes. The distribution companies still have to pay 100% sales tax that results in accumulation of refunds for them, which is continuously carried forward. The meeting was informed that as of today refunds stood at over Rs250 billion and another Rs127 billion had been charged on account of GST on subsidy paid by the government.
The Power Division proposed that there should be no GST on subsidy. Secondly, the distribution companies pay what they collect and GST payment should be on actual collection basis instead of total billing.
Thirdly, a summary in that regard should be presented to the Economic Coordination Committee (ECC) and it should also be included in the finance bill.
Published in The Express Tribune, April 21st, 2020.
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