Annual electricity rebates paid to Horowhenua households for the past 27 years could be under threat, with Inland Revenue said to be considering a steep tax.

Electra Trust has been providing its 46,000 consumers across Horowhenua and Kapiti with an average of one month's free power a year through a sales discount on their power bills, in a system that has been in place for almost three decades.

Chris Turver, chairman of the Electra Trust, says the lines companies in New Zealand that are wholly consumer-owned, such as Electra, recently received a letter from IRD advising it was considering taxing rebates at 28 per cent.

Mr Turver said more than $200 million had been returned to communities through annual discounts, relieving the pressure on household and business budgets and building strength into the local economy.


He said the proposed tax would sharply reduce the annual discounts to consumers and create a hostile response just a year out from the next general election.

"The Electra Trust operates under a Trust Deed created within parameters set by the government in 1993," said Mr Turver.

"The Deed requires that, for a consumer-owned lines company, all surpluses be returned to their consumer owners.

"The law has not been changed in that time, so why has the IRD decided to take this approach now? There was no forewarning."

Mr Turver said the discount was not a commercial dividend and consumer-owned trusts are using exactly the same principle as large commercial firms which discount products using 'cash backs' for purchases and don't get taxed on the cash back value.

"The fact [IRD] have put something in writing is as good as saying something is going to happen," he said.

"I hope power consumers will voice their concerns, and I urge them to write to the chief executive of Inland Revenue."

IRD have so far refused to comment to media, citing the secrecy provisions of the Tax Administration Act.