The Federal Board of Revenue is examining a proposal to withdraw sales tax on electricity consumed by commercial and industrial units to check excessive payments of sales tax refunds to such consumers. Sources told Business Recorder here on Thursday that the proposal to abolish sales tax on electricity consumed by commercial and industrial units was discussed during the Board-in-Council meeting chaired by FBR Chairman Salman Siddiqui.
The meeting discussed one-point agenda of revenue generation measures in 2011-12. According to the sources, the argument behind the proposal of abolition of sales tax on electricity used by commercial and industrial consumers is that the electricity will become cheaper and sales tax coming under this head was not required to be refunded. Due to line losses, the input is very much high as compared to output, which resulted in huge amount of refund payments. In case of withdrawal of sales tax on commercial use of electricity, this might be helpful in reducing refunds. At the same time, it would provide a major relief to the business and trade.
Presently, five leading export-oriented sectors are enjoying sales tax zero-rating facility on electricity supplied to zero-rated units. However, the sales tax is applicable on power consumed by industrial and commercial units. However, it was merely a proposal which has been discussed during the Board-in-Council meeting and nothing has been final in this regard, sources said.
Sources said that Board-in-Council also discussed the possible decrease in sales tax collection following international decrease in petroleum prices. The existing trend of POL products was analysed during the Board-in-Council with expected decrease in taxes due to decrease in petroleum prices globally. As an alternate measures, one of the FBR Members suggested new taxation measures for generating additional revenue.
If there is a major decrease in the prices of the POL products, the FBR would be forced to take additional tax measures which have been drafted by the Board. However, the decision of taking additional revenue measures is only possible in case there is a drastic decrease in sales tax collection due to decrease in prices of the POL products globally. The POL is a major revenue spinner and any shortfall in sales tax collection from the petroleum products may force the Board to examine the possibility of taking additional revenue measures in 2011-12.
However, tax authorities have categorically informed the FBR Members that no new tax measure would be taken. The FBR has already taken measures in budget (2011-12) and the budgetary measures would continue in 2011-12 without taking any additional revenue generation measures. However, the tax machinery would focus on discovering new taxpayers, documentation of economy and measures to expand the tax base. The enforcement and administrative measures would be the main focus during 2011-12, sources added.
When contacted, a tax expert said that input tax adjustment is available to the registered persons therefore the continuation of sales tax on power consumed by commercial sector would attract the people to come under the sales tax registration. This is due to the reason that the sales tax paid by a non-registered person will not be adjustable whereas it is adjustable for registered persons. Hence, cost of doing business of non-registered persons will be higher than that of the registered persons. Therefore, non-registered persons will seek registrations in order to be competitive in the market, expert added.