ISLAMABAD: Despite opposition of the Water and Power Minister, the Federal Board of Revenue will maintain its legal stance at all forums including the Economic Coordination Committee (ECC) of the Cabinet regarding sales tax on the supply of electricity including subsidy granted to power consumers. It has, reportedly, been learnt that the FBR will charge sales tax on electricity as per sales tax law and rules as high court has already upheld the board’s interpretation of charging sales tax on electricity.
According per details, electricity is part of the value of supply under the sales tax law and sales tax has been charged on the entire value of supply including government subsidy. Thus, sales tax is chargeable on account of subsidy. In the meanwhile, the FBR received fresh comments of the Ministry of Water and Power on the issue of chargeability of sales tax on subsidy granted by the government to electricity consumers.
The ministry rejected the FBR’s view point and observed that the government had notified the independent tariff for Discos effective February 24, 2007 based on Nepra’s determination FY 2006-07. The government continued the policy of charging the electricity tariff to the consumers at uniform basis as against the different electricity tariff of the Discos.
However, the FBR started interpretation of the rules and has assessed the levy of the sales tax on the basis of tariff charged to the consumers plus the subsidy paid by the government. The FBR has raised recoveries of billions of rupees against Discos by taking coercive measures such as attachment of electricity revenue collection accounts resulting in delaying payments to IPPs and adding circular debt. To resolve the matter, Ministry of Water and Power convened a meeting of Discos and representative of the FBR. However, the board maintained its stance by stating that the Sales tax is chargeable against government on account of subsidy. The FBR position and coercive actions of recovery is disrupting the operation of power sector.
On the other hand, the Discos and the FBR are engaged in litigation in various courts and tribunals. To avoid any insufferable situation in power sector, the ECC of the Cabinet may opt one of the options: Firstly, directions/clarification may be issued that Sales Tax is not chargeable against government on account of subsidy seeing that MoF has also not made any budgetary provision on account of Sales Tax on Tariff Differential Subsidy. Secondly, Finance Division may allocate provide budget on account of Sales Tax on Tariff Differential Subsidy for onward payment to the Federal Board of Revenue for resolution of the issue.
The viewpoint was circulated to the Finance and Law and Justice Division ministries, the FBR and Nepra for their views/comments. Finance Division supported the first abovementioned proposal. However, despite repeated reminders, the FBR furnished no comments.