How is sales tax collected from a small shop through its electricity bill, at 5% or 7.5%?

What does the law say?

Section 3(9) of the Sales Tax Act, 1990 replaces normal invoice-based sales tax for small retailers with a charge on the shop’s electricity bill. It applies to “retailers, other than those falling in Tier-1”. The charge is set by the size of the monthly bill:

Monthly bill amount	Rate under section 3(9)
Does not exceed Rs. 20,000	5 percent
Exceeds Rs. 20,000	7.5 percent

Three further rules sit in the same sub-section:

• It is on top of electricity sales tax. The first proviso says the tax “shall be in addition to the tax payable on supply of electricity under sub-sections (1), (1A) and (5)”.
• The supplier collects and deposits it. The electricity supplier “shall deposit the amount so collected directly without adjusting against his input tax”. It is not the supplier’s own sales tax and cannot be netted off.
• Exclusions go through the Commissioner. The second proviso says the Commissioner Inland Revenue having jurisdiction shall issue an order to the electricity supplier excluding a person who is a Tier-1 retailer or not a retailer.

Section 3(9) opens with “Notwithstanding anything contained in sub-section (1)”. So for these retailers the bill-based charge applies despite the general 18 percent rule in sub-section (1). The sub-section does not spell out in so many words how the two interact beyond that opening phrase.

Who is caught by section 3(9)?

Two definitions in section 2 decide it. A “retailer” under section 2(28) is a person supplying goods to the general public for the purpose of consumption. A Tier-1 retailer under section 2(43A) includes chain store units, shops in air-conditioned malls (not kiosks), retailers whose electricity bills over the preceding twelve months exceed Rs. 1,200,000 in total, and retailers or wholesaler-cum-retailers with turnover above two hundred million rupees, among others.

A retailer that is not in any Tier-1 category falls under section 3(9). A retailer that is Tier-1 pays under section 3(9A) at the rate applicable to the goods sold, and should be excluded from the bill charge through the Commissioner’s order.

Can the Government change these rates?

Yes. Section 3(12) lets the Federal Government, “in lieu of or in addition to” the tax under section 3(9), levy and collect by notification in the official Gazette such amount of tax, at such rates and from such date as it thinks fit, from retailers other than Tier-1 through their monthly electricity bill. It may set different rates or amounts for different classes of persons. Any such notification is not part of this corpus, so the 5 and 7.5 percent figures above are the rates printed in the Act, and the amount on an actual bill may differ if a notification is in force.

Worked example (illustrative figures)

Two shops in Faisalabad, neither of them Tier-1:

Bilal’s general store. Monthly bill amount Rs. 16,000.

1. Rs. 16,000 does not exceed Rs. 20,000, so the rate is 5 percent.
2. 5% of Rs. 16,000 = Rs. 800 for the month.
3. Over twelve months at the same bill: Rs. 800 x 12 = Rs. 9,600.

Sana’s tailoring and fabric shop. Monthly bill amount Rs. 28,000.

1. Rs. 28,000 exceeds Rs. 20,000, so the rate is 7.5 percent.
2. 7.5% of Rs. 28,000 = Rs. 2,100 for the month.

In both cases this is charged in addition to the ordinary sales tax on the electricity itself, and in addition to any income tax collected on the bill under section 235 of the Income Tax Ordinance, which is a separate law.

Section 3(9) does not define “monthly bill amount”, so it does not say whether the base is the energy charge alone or the bill including other taxes and charges. The example simply applies the rate to an assumed bill figure.

What if my monthly bill crosses Rs. 20,000 in some months?

The text refers to “the monthly bill amount”, so the rate is read month by month. A shop with a Rs. 18,000 bill in March and a Rs. 24,000 bill in June would, on these words, pay 5 percent in March (Rs. 900) and 7.5 percent in June (Rs. 1,800). Separately, if the shop’s bills over twelve consecutive months add up to more than Rs. 1,200,000, section 2(43A)(c) makes it a Tier-1 retailer, and section 3(9) stops applying to it.

Does paying through the bill mean I need no registration?

Section 14(1)(b) requires a retailer liable to sales tax to register, “excluding such retailer required to pay sales tax through his electricity bill under sub-section (9) of section 3”. The related question on registration and returns covers this in more detail.

Common mistakes

• Treating 7.5 percent as applying only above Rs. 20,000. The sub-section chooses one rate by the size of the monthly bill and does not describe slabs.
• Thinking this is an income tax. Section 3(9) is in the Sales Tax Act. Income tax on commercial electricity bills comes from section 235 of the Income Tax Ordinance, 2001.
• Assuming a non-retail business must bear it. The second proviso provides for exclusion of a person who is not a retailer through the Commissioner’s order to the supplier.
• Expecting to claim it back as input tax. The supplier deposits it “without adjusting against his input tax”, and section 3(9) itself provides no adjustment for the shop either.

What to check in the official text

Read section 3(9) with both provisos, section 3(12), and the definitions in sections 2(28) and 2(43A). Check whether any notification under section 3(12) has changed the rates or amounts for your class of retailer; such notifications are outside this corpus.