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Taxation by Coercion

The electricity bill has emerged as the government’s easiest and most effective tax-collection mechanism. But what is administratively convenient is not necessarily economically efficient or socially equitable.

By Asif Javed | October 2026

Pakistan’s electricity bill is increasingly becoming more than just an energy bill. It is turning into one of the state’s most efficient tax-collection instruments, and critics argue that it symbolises a tax system that finds it easier to extract revenue from those it can reach than to identify those who should actually be paying.

The numbers are difficult to ignore. The Federal Board of Revenue (FBR) collected Rs. 1.87 trillion in sales and income taxes through electricity bills during the four fiscal years from 2022-23 to 2025-26, according to an official briefing before the Senate Standing Committee on Finance and Revenue. The collection stood at Rs. 312.8 billion in 2022-23, Rs. 515.5 billion in 2024-25, and Rs. 476.1 billion in 2025-26.

In the latest fiscal year, Rs. 351.8 billion was collected from sales tax and Rs. 124.4 billion from income tax withheld through electricity distribution companies. The income-tax collection included Rs. 66.18 billion from industrial consumers, Rs. 51.99 billion from commercial consumers, Rs. 4.83 billion from domestic non-ATL consumers, and Rs. 1.37 billion under Section 235A.

The figures have generated an uncomfortable question: Is Pakistan broadening its tax base, or simply getting better at taxing people who are already within reach? That question becomes more prominent because an earlier National Assembly briefing put the annual collection through electricity bills at around Rs. 620 billion. The FBR subsequently disputed that figure, saying the official four-year data showed cumulative sales and income-tax collections of Rs. 1.867 trillion.

The difference in the figures should not obscure the larger point. Irrespective of the actual amount, the sums involved are substantial enough to expose a structural feature of Pakistan’s tax system.

There is an obvious attraction in using electricity bills as a fiscal instrument. The consumer is already identified, and consumption is measured. Thwe bill is issued every month. Collection is integrated into an existing payment system. There is little room for evasion at the point of collection.
From the government’s perspective, it is an almost perfect mechanism. But what is administratively convenient is not necessarily economically or socially equitable. A person’s electricity consumption does not, by itself, establish his or her income-tax liability. A larger bill may reflect a large household, high electricity costs, commercial activity, climatic conditions, or simply the cumulative impact of tariffs and surcharges.

Yet electricity consumption is increasingly being used as a gateway for income-tax withholding. That is where the principle of taxation begins to collide with the convenience of collection.

The most revealing aspect of the debate may not be the Rs. 1.867 trillion collected over four years. It may be the FBR’s admission that between Rs. 400 billion and Rs. 500 billion in adjustable income-tax withholding remains unclaimed each year.

The FBR chairman has said that taxpayers can recover the amount by filing their income tax returns and claiming refunds. On paper, that sounds reasonable. In practice, it raises a more fundamental question: why should citizens have to prove that money taken from them was never actually owed?
An adjustable tax is, by definition, an advance against a final liability. If the final liability is lower than the amount withheld, the excess should ultimately return to the taxpayer. But where large sums remain unclaimed year after year, the system begins to resemble an involuntary loan to the government.


The government gets the money immediately; the citizen must navigate the tax system to get it back. For a sophisticated corporate taxpayer with professional accountants, that may be manageable. For an ordinary consumer who has never filed a tax return, the supposed refund may be practically inaccessible.

This is where the distinction between taxation and coercion becomes important. A tax system should determine liability before collecting. A collection system can do the opposite: collect first and leave the citizen to establish whether the state was entitled to the money.

A salaried employee is easy to tax because the employer is already in the formal system. A documented company is relatively easy to tax because its transactions leave an audit trail. Electricity consumption is easier still—the meter has already done the accounting.

But bringing an undocumented retailer into the tax net is harder. Identifying undeclared property wealth is harder. Tracking cash-based businesses is harder. Tracking sectors with substantial influence is harder. The distinction is critical because a tax system built around convenience can produce the opposite of what genuine reform is supposed to achieve.

Instead of broadening the base, it can deepen the burden on those already inside it.

If administrative concessions are offered to retailers to enter the tax system while automatic tax deductions are being made from the income or electricity bills of ordinary people, then perceptions of unfairness are inevitable.

Consumers are already paying tariffs, surcharges, duties and other charges through their electricity bills. There is nothing inherently illegitimate about taxing electricity consumption. Many countries tax energy. But the international comparison becomes less persuasive when the question is not simply whether electricity is taxable, but how much of the fiscal burden is being placed on electricity consumers and why.

A consumption tax is one thing; using electricity consumption as a proxy for income-tax liability is another. The distinction should not be lost in the pursuit of revenue.

The FBR is now developing the technological capacity to do precisely what electricity-bill taxation often avoids: identify risk rather than simply collect from visibility. The FBR’s new operating model involves artificial intelligence, centralised data and risk-based assessment. The National Faceless System is planned to be introduced in phases from October 2026. Officials have said the system will use hundreds of potential risk indicators to identify cases for audit and investigation.

A fair tax system begins with a simple sequence: identify the taxpayer, establish liability, collect the tax, reconcile the account, and refund the excess. Pakistan increasingly risks reversing that sequence as the existing framework works as follows: find a collection point, take the money, and ask the citizen to prove otherwise. That is the central problem with treating bills as a fiscal shortcut.

If an income-tax deduction is genuinely adjustable, the adjustment should be simple and automatic. If a consumer is not liable, the system should identify that fact without forcing the consumer into a complicated refund process.

The most serious consequence of electricity-bill taxation is therefore not the amount consumers pay today; it is the possibility that such collection creates the illusion of reform.

A government under fiscal pressure can point to hundreds of billions of rupees collected through electricity bills and demonstrate that the tax machinery is working. But a functioning collection mechanism is not necessarily a functioning tax system. A genuine tax system must broaden the tax base. It must bring untaxed economic activity into the formal economy. It must distribute the burden according to the ability to pay. It must reward compliance rather than penalise it.

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