ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed power distribution companies (DISCOs) to charge an 18% sales tax on electricity supplied to solar net metering consumers, citing a revenue loss of Rs9.8 billion. The order, issued Monday, mandates the Federal Board of Revenue (FBR) and DISCOs to enforce the tax on the gross value of electricity supplied, rejecting the net metering deductions previously applied.
The FTO clarified that the Sales Tax Act 1990 does not recognize net metering adjustments, and the tax must be levied on the total electricity supplied by DISCOs to consumers, regardless of any energy fed back into the grid. A similar ruling applies to the withholding of income tax under Section 235 of the Income Tax Ordinance 2001, which must also be deducted on the gross amount.
The order rebuffs previous guidance from the National Electric Power Regulatory Authority (NEPRA) and the Alternative Energy Development Board (AEDB), stating that tax laws override any regulations issued by these entities. It further criticized 11 out of Pakistan’s 12 DISCOs for failing to comply with legal tax provisions, noting that only K-Electric has been charging sales and income tax correctly on electricity bills.
The FTO’s decision follows a complaint from a K-Electric consumer who alleged discriminatory treatment, as NEPRA’s 2015 framework had allowed net metering deductions. However, the FTO ruled that fiscal laws take precedence over regulatory guidelines.
The FBR has been directed to ensure immediate compliance by all DISCOs, including Faisalabad Electric Supply Company (FESCO), Lahore Electric Supply Company (LESCO), Islamabad Electric Supply Company (IESCO), and others. Additionally, the FTO has urged an inquiry into the massive annual revenue losses resulting from the misapplication of tax laws.
