LAHORE: The Income Tax department is issuing notices to the power distribution companies (Discos) for not deducting withholding tax against the payment of Use of System Charges (UoSC) to the National Transmission & Despatch Company (NTDC), said sources.

The Use of System Charges means any charge (fixed or variable) payable by a Disco, or any other use of the transmission system for transportation of power from generator to delivery metering point and delivery to a distribution company or any other user. The UoSC is part and parcel of the process for electricity supply and cannot be separated from it, which is exempted from income tax.

It may be noted that the NTDC sells electricity to the Discos and the sale price comprises various components, including the UoSC which relates to the cost of usage of electricity wires between the points of generation to the delivery of electricity to Discos.

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Both the NTDC and Discos exclusively deal with the supply of electricity and companies receiving payments for the supply of electricity are exempt from payment of Withholding tax under the Income Tax Ordinance, 2001.

In addition, the Discos were exempted from payment of this tax as per SRO 586(I)/91 dated 30 June 1991. Therefore, there is no reason to issue show cause notice in any such case as there is no need to prove the same through documentary evidence if someone is exempted through an SRO.

The sources said the Inland Revenue department is required to conduct audit prior to issuance of a show-cause notice and directly invoke relevant provisions of the law constitutes fishing and roving inquiry, which is against the spirit of law. They said the tax officials even do not entertain the confirmation letter from Central Power Purchasing Agency-Guarantee (CPPAG) Ltd regarding non-payment of UoSC by Discos.

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