Can I adjust the income tax on my restaurant's commercial electricity bill?

Only part of it, if you run the restaurant or bakery as an individual or a partnership. Section 235(4) of the Income Tax Ordinance, 2001 splits the tax collected through a commercial electricity bill into a minimum tax portion, which cannot be refunded, and an adjustable portion. A company is treated differently: all the tax is adjustable against its tax liability.

What does the law say?

Section 235(1) requires advance tax to be collected, at the rates in Division IV of Part IV of the First Schedule, on the amount of the electricity bill of a commercial or industrial consumer (and a domestic consumer, subject to a proviso for those on the Active Taxpayers’ List). Section 235(2) makes the person preparing the bill charge it in the same way as the electricity charges. Its Explanation says the bill means the bill inclusive of sales tax and all incidental charges.

Section 235(4) then says:

• (a) for a taxpayer other than a company, tax collected up to a bill amount of three hundred and sixty thousand rupees per annum shall be treated as minimum tax on the income of such persons, and no refund shall be allowed;
• (b) for a taxpayer other than a company, tax collected on the monthly bill over and above thirty thousand rupees per month shall be adjustable; and
• (c) for a company, tax collected shall be adjustable against tax liability.

What are the rates for a commercial kitchen?

Division IV of Part IV of the First Schedule, as amended to 30 June 2026, sets these rates for commercial and industrial consumers, measured on the gross amount of the bill. They apply in tax year 2027 (1 July 2026 to 30 June 2027).

Gross amount of monthly bill	Tax (commercial consumer)
Up to Rs. 500	Rs. 0
Above Rs. 500, not above Rs. 20,000	10% of the amount
Above Rs. 20,000	Rs. 1,950 plus 12% of the amount exceeding Rs. 20,000

Industrial consumers pay Rs. 1,950 plus 5% above Rs. 20,000. The Ordinance does not itself define which premises are commercial or industrial consumers.

Worked example (illustrative figures)

Bilal runs a bakery in Faisalabad as a sole proprietor. His commercial electricity bill, including sales tax and all charges, is Rs. 80,000 every month. The bill amount is invented; the rates and thresholds are those in section 235 and Division IV.

Tax charged on each month’s bill:

1. Amount above Rs. 20,000: 80,000 - 20,000 = Rs. 60,000
2. 12% of Rs. 60,000 = Rs. 7,200
3. Tax on the bill: 1,950 + 7,200 = Rs. 9,150
4. For twelve months: 9,150 x 12 = Rs. 109,800

Splitting it under section 235(4):

The Ordinance does not print a formula for dividing the tax on one bill between clauses (a) and (b). One way to read the two clauses together is to work out the tax on the first Rs. 30,000 of the monthly bill (which adds up to Rs. 360,000 over a year) and treat the rest as adjustable:

1. Tax on a Rs. 30,000 bill: 1,950 + 12% of 10,000 = 1,950 + 1,200 = Rs. 3,150
2. Minimum tax portion for the year: 3,150 x 12 = Rs. 37,800
3. Adjustable portion per month: 9,150 - 3,150 = Rs. 6,000
4. Adjustable portion for the year: 6,000 x 12 = Rs. 72,000
5. Check: 37,800 + 72,000 = Rs. 109,800

If Bilal’s bakery were instead owned by a private limited company, section 235(4)(c) would make the full Rs. 109,800 adjustable against the company’s tax liability.

What if my bill is small?

Take a cafe with a commercial bill of Rs. 25,000 a month (illustrative). Tax is 1,950 + 12% of 5,000 = 1,950 + 600 = Rs. 2,550. The annual bill is 25,000 x 12 = Rs. 300,000, which is below Rs. 360,000, and no monthly bill goes above Rs. 30,000. For a taxpayer other than a company, the whole Rs. 2,550 a month falls under section 235(4)(a): minimum tax, with no refund.

What if I am not on the Active Taxpayers’ List?

Rule 1 of the Tenth Schedule says that where tax is required to be collected under any provision of the Ordinance from a person not appearing in the active taxpayers’ list, the rate shall be increased by hundred per cent of the rate specified. The proviso in section 235(1) that switches off collection for listed persons applies to domestic consumers only, not to commercial connections. How a distribution company applies the Tenth Schedule to a particular bill is not set out in the Ordinance.

Common mistakes

• “All tax on my electricity bill is adjustable.” Only for a company. For others, section 235(4)(a) treats the tax up to Rs. 360,000 of annual billing as minimum tax with no refund.
• “The tax is worked out on the electricity charges alone.” The Explanation to section 235(2) says the bill includes sales tax and all incidental charges.
• “Nothing can stop the deduction.” Section 235(3) allows a certificate from the Commissioner in the cases it lists, such as exempt income or advance tax liability already discharged.

What to check in the official text

Read section 235 and Division IV of Part IV of the First Schedule of the Income Tax Ordinance, 2001 as amended to 30 June 2026, and rule 1 of the Tenth Schedule. Also look at the Second Schedule for any clause that disapplies section 235 for a particular class of taxpayer, since some clauses there do so for named sectors.