The Federal Tax Ombudsman (FTO) has uncovered a significant revenue loss of Rs. 9.4 billion and directed the Federal Board of Revenue (FBR) to immediately impose an 18% sales tax on solar net metering electricity consumers across all four provinces. The FTO has instructed the FBR to ensure that power distribution companies (DISCOs) collect sales tax on the gross value of electricity supplied, without factoring in net metering adjustments.
The FTO’s order also highlighted a revenue loss of over Rs. 3 billion due to the misapplication of sales tax laws by power companies. It emphasized that withholding income tax under Section 235 of the Income Tax Ordinance must also be enforced correctly.
The case originated from a complaint filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000, alleging illegal sales tax charges on the gross value of electricity supplied to consumers with solar panels. The complainant, a K-Electric consumer, argued that the company was charging sales tax on the gross electricity value, disregarding the net metering concept outlined in NEPRA’s SRO 892(1)/2015 and the “Net-Metering Reference Guide for DISCOs” issued by the Alternative Energy Development Board (AEDB). This practice, the complainant claimed, resulted in discriminatory treatment compared to other DISCOs, which charge sales tax on net electricity units.
The complainant, who installed solar panels under NEPRA’s framework for distributed generation and net metering, stated that K-Electric’s approach led to higher electricity bills for its consumers compared to those served by the other 11 DISCOs in Pakistan. The FTO, however, clarified that K-Electric was correctly following the legal provisions for taxation on net metering under the supervision of LTO Karachi. The only valid concern raised by the complainant was the discriminatory treatment compared to other DISCOs.
The FTO noted that the FBR had previously clarified that all DISCOs, including K-Electric, are required to charge sales tax on the gross value of electricity supplied, irrespective of net metering. Despite this, the FBR has failed to enforce the law effectively, resulting in substantial revenue losses due to neglect, inefficiency, and delays in administration.
