The Federal Tax Ombudsman (FTO) has ruled that consumers using solar net metering across Pakistan will be subject to an 18% sales tax after identifying a significant revenue loss of Rs 9.8 billion, Business Recorder reported.
In its directive, the FTO has ordered power distribution companies (DISCOs) and the Federal Board of Revenue (FBR) to enforce the tax “immediately.” The order clarifies that sales tax must be applied to the total electricity supplied by DISCOs, without adjusting for net metering offsets.
The FTO emphasized that the tax is “mandatory on the total supply value, not the net amount,” meaning all DISCOs, including K-Electric, must charge sales tax based on the full electricity supply, disregarding any reductions from solar generation.
Similarly, income tax withholding under Section 235 of the Income Tax Ordinance, 2001, must also be calculated on the gross electricity value, independent of net metering.
The directive further asserted that the National Electric Power Regulatory Authority (NEPRA) lacks authority over taxation matters. It stated that any taxation-related regulations from NEPRA or the Alternative Energy Development Board cannot override the Sales Tax Act of 1990 or the Income Tax Ordinance of 2001. The Supreme Court has upheld that fiscal laws take precedence over general regulations.
The FBR’s instructions are “binding,” and all tax authorities must comply with the legal provisions outlined in Sections 72 of the Sales Tax Act and 214 of the Income Tax Ordinance.
According to the order, K-Electric has been correctly implementing sales and income tax on electricity bills. However, the remaining eleven DISCOs have failed to adhere to legal provisions when collecting these taxes from consumers.
A complaint was lodged under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000, challenging the imposition of sales tax on the total electricity supply value without accounting for net metering. The complainant, a K-Electric customer, argued that this practice results in “unfair financial burdens and discriminatory treatment,” as other DISCOs have continued charging based on net metering adjustments.
The FTO has instructed the FBR to ensure tax compliance for the following DISCOs:
- Faisalabad Electric Supply Company
- Gujranwala Electric Power Company
- Hazara Electric Supply Company
- Hyderabad Electric Supply Company
- Islamabad Electric Supply Company
- Lahore Electric Supply Company
- Multan Electric Power Company
- Peshawar Electric Power Company
- Quetta Electric Supply Company
- Sukkur Electric Power Company
- Tribal Electric Supply Company
Additionally, the FTO has called for an investigation into the billions in annual revenue losses suffered by the government due to the lack of proper tax enforcement.
