Why is income tax charged on my shop's commercial electricity bill and how much is it?

What does the law say?

Section 235(1) of the Income Tax Ordinance, 2001 says advance tax “shall be collected” at the rates in Division IV of Part IV of the First Schedule “on the amount of electricity bill of a commercial or industrial or domestic consumer”. Section 235(2) makes the person preparing the bill charge the tax in the same way as the electricity charges themselves. So the tax on your shop’s bill is income tax collected in advance by the electricity company, not a charge for electricity.

The only built-in exception in section 235(1) is for a domestic consumer whose name is on the Active Taxpayers’ List. A shop’s commercial connection is not domestic, so that proviso does not help it.

The Explanation under section 235(2) sets the base: the bill means the electricity bill “inclusive of sales tax and all incidental charges”. The table is applied to that gross figure.

How much is it for tax year 2027?

Division IV of Part IV of the First Schedule, as printed in the Ordinance amended to 30 June 2026, sets these rates for commercial and industrial consumers “from gross amount of bills”:

Gross amount of monthly bill	Commercial consumer	Industrial consumer
Up to Rs. 500	Rs. 0	Rs. 0
Exceeds Rs. 500 but not Rs. 20,000	10% of the amount	10% of the amount
Exceeds Rs. 20,000	Rs. 1,950 plus 12% of the amount exceeding Rs. 20,000	Rs. 1,950 plus 5% of the amount exceeding Rs. 20,000

These are the rates in force for bills in tax year 2027 (1 July 2026 to 30 June 2027) unless a later amendment changes them.

One oddity in the printed table: 10% of a Rs. 20,000 bill is Rs. 2,000, while the top band starts from a fixed Rs. 1,950. This page reproduces the figures exactly as printed rather than correcting them.

What if my name is not on the Active Taxpayers’ List?

Section 100BA says the collection of advance tax from a person not on the Active Taxpayers’ List “shall be determined in accordance with the rules in the Tenth Schedule”, and that Schedule overrides anything contrary in the Ordinance. Rule 1 of the Tenth Schedule says that where tax is to be collected from such a person, “the rate of tax required to be deducted or collected … shall be increased by hundred percent of the rate specified in this Ordinance”.

For the 10 percent band, that gives 20 percent. For the top band, the rule talks about the “rate” but the charge is a fixed Rs. 1,950 plus 12 percent. The Schedule does not say whether the fixed amount is doubled along with the percentage, so this page does not work out a figure for that band.

Worked example (illustrative figures)

Three shops in Multan, all on commercial connections. The bill figures are gross amounts including sales tax and incidental charges, as the Explanation to section 235(2) requires.

Shop A: grocery, on the Active Taxpayers’ List, gross bill Rs. 15,000.

1. Rs. 15,000 is above Rs. 500 and not above Rs. 20,000, so 10 percent applies.
2. 10% of Rs. 15,000 = Rs. 1,500.

Shop B: electronics, on the list, gross bill Rs. 32,000.

1. The bill exceeds Rs. 20,000, so the commercial top band applies.
2. Amount above Rs. 20,000: Rs. 32,000 - Rs. 20,000 = Rs. 12,000.
3. 12% of Rs. 12,000 = Rs. 1,440.
4. Tax: Rs. 1,950 + Rs. 1,440 = Rs. 3,390.

Shop C: same bill as Shop A, but not on the list.

1. The 10 percent rate is increased by hundred percent under Tenth Schedule rule 1, giving 20 percent.
2. 20% of Rs. 15,000 = Rs. 3,000, twice Shop A’s charge.

What if I am a retailer outside Tier-1?

Section 99A lets the Federal Government or the Board, through an income tax general order, collect tax from retailers other than Tier-I retailers and specified service providers on commercial electricity connections, at rates set in that order, “in addition to or in lieu of” the advance tax under section 235(1). Section 99A(3) says section 235(1) keeps applying to these persons unless the general order specifically exempts them, and section 99A(4) says section 100BA and Tenth Schedule rule 1 do not apply to tax collectible under section 99A unless the general order provides for it. No such general order is in this corpus, so this page does not state its rates.

This income tax is separate from the sales tax that the Sales Tax Act, 1990 collects on the same bill from non-Tier-1 retailers.

What if my income is exempt or already taxed?

Section 235(3) says the advance tax is not collected from a person who produces a certificate from the Commissioner that his income for the tax year is exempt, or that he has already discharged his advance tax liability, or whose entire income is subject to the final or minimum tax regime under other provisions of the Ordinance. Whether the tax you do pay can be adjusted later is covered on the related page about section 235(4).

Common mistakes

• Thinking filers are exempt on shop bills. The Active Taxpayers’ List proviso in section 235(1) covers domestic consumers only.
• Working the rate on the bill before sales tax. The Explanation to section 235(2) includes sales tax and incidental charges in the bill.
• Treating it as the same thing as the retailer sales tax. The bill-based sales tax on small retailers is a different levy under the Sales Tax Act, 1990.
• Applying the domestic rates. Division IV has a separate clause (2) for domestic consumption (nil where the monthly bill is less than Rs. 25,000, 7.5 percent at Rs. 25,000 or more); it does not apply to a commercial connection.

What to check in the official text

Read section 235(1) to (4), section 100BA, rule 1 of the Tenth Schedule and Division IV of Part IV of the First Schedule. Section 99A allows income tax general orders affecting retailers’ electricity bills; check whether one is in force, as none is included here.