Why is income tax charged on my shop's electricity bill, and can I adjust or get it refunded?

The income tax line on a shop’s electricity bill is advance tax under section 235 of the Income Tax Ordinance, 2001. The electricity company is only the collector. Whether that tax later reduces your final income tax depends on whether you are a company and on how large your bills are.

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 electricity bill of a commercial or industrial consumer (and of a domestic consumer, who escapes it if on the Active Taxpayers’ List). The proviso for people on the list covers domestic consumers only, so a shop’s commercial connection is charged whatever the owner’s filing status.

Section 235(2) makes the person preparing the bill charge the tax “in the manner electricity consumption charges are charged”. Its Explanation says the bill means the electricity bill inclusive of sales tax and all incidental charges.

What are the rates for tax year 2027?

The Ordinance is amended to 30 June 2026, so these rates apply to bills in tax year 2027. Clause (1) of Division IV sets this table for commercial and industrial consumers, applied to the gross amount of the bill:

Gross amount of bill	Tax (commercial consumers)
Up to Rs. 500	Rs. 0
Exceeds Rs. 500 but not Rs. 20,000	10% of the amount
Exceeds Rs. 20,000	Rs. 1,950 plus 12% of the amount exceeding Rs. 20,000

Industrial consumers pay Rs. 1,950 plus 5 percent in the top band. As printed, the table gives Rs. 2,000 of tax on a bill of exactly Rs. 20,000, but Rs. 1,950 plus 12 percent of the excess just above it. The Ordinance does not explain the difference.

Which part is minimum tax and which part is adjustable?

Section 235(4) splits the tax:

• (a) For a taxpayer other than a company, tax collected up to a bill amount of Rs. 360,000 per annum is minimum tax on income, and no refund is allowed.
• (b) For a taxpayer other than a company, tax collected on the monthly bill over and above Rs. 30,000 per month is adjustable.
• (c) For a company, all the tax collected is adjustable against tax liability.

Clause (a) treats its part as minimum tax on income and bars any refund of it. Clause (c) describes adjustable tax as adjustable “against tax liability”, which is the tax worked out in the return.

Clause (a) is framed per year and clause (b) per month. Rs. 360,000 a year equals Rs. 30,000 a month over twelve months, but the Ordinance does not spell out how “tax collected on” the part of a bill above Rs. 30,000 is measured, or how months above and below Rs. 30,000 are combined.

Worked example (illustrative figures)

Bilal is an individual who runs a hardware shop in Peshawar. His commercial electricity bill, including sales tax, is Rs. 50,000 every month of tax year 2027.

1. Tax each month: Rs. 1,950 + 12% x (Rs. 50,000 - Rs. 20,000) = Rs. 1,950 + Rs. 3,600 = Rs. 5,550.
2. Tax for the year: 12 x Rs. 5,550 = Rs. 66,600.
3. For a sense of the split, apply the table to the first Rs. 30,000 of each bill: Rs. 1,950 + 12% x Rs. 10,000 = Rs. 3,150 a month, or Rs. 37,800 a year. On that reading, Rs. 37,800 is minimum tax under section 235(4)(a).
4. The rest, Rs. 66,600 - Rs. 37,800 = Rs. 28,800 (12% x Rs. 20,000 x 12), would be adjustable under section 235(4)(b).

Step 3 is one reading of the clauses, shown to give a sense of scale. The Ordinance does not prescribe this arithmetic.

A second shopkeeper, Saima, has a bill of Rs. 15,000 a month. Her tax is 10% x Rs. 15,000 = Rs. 1,500 a month, Rs. 18,000 a year. Her annual bills total Rs. 180,000, within Rs. 360,000, and no month exceeds Rs. 30,000, so all of it falls under clause (a) as minimum tax with no refund.

What if the shopkeeper is not on the Active Taxpayers’ List?

Rule 1 of the Tenth Schedule increases the rate of tax to be collected from persons not on the Active Taxpayers’ List by hundred percent. For a commercial bill in the 10 percent band that means 20 percent. The separate page on non-ATL shop bills covers this in more detail.

Common mistakes

• Thinking filer status removes the tax. The Active Taxpayers’ List proviso in section 235(1) applies only to domestic consumers.
• Expecting a refund of all of it. Tax on bills up to Rs. 360,000 a year is minimum tax with no refund for non-company taxpayers.
• Working the rate on the bill before sales tax. The Explanation to section 235(2) uses the bill inclusive of sales tax.

What to check in the official text

Read section 235 and clause (1) of Division IV of Part IV of the First Schedule to the Income Tax Ordinance as amended to 30 June 2026, and rule 1 of the Tenth Schedule. In the consolidated site text, part of section 235(3) is interrupted by text from another section, so read that sub-section in the official PDF. Sales tax collected through a retailer’s electricity bill is a separate charge under the Sales Tax Act, covered on its own page.