The Federal Tax Ombudsman (FTO) has ordered an 18% sales tax on electricity bills for consumers utilizing solar net metering nationwide, citing a significant revenue loss of billions of rupees a year.
Immediate Implementation Ordered
In its directive, the FTO instructed power distribution companies (DISCOs) and the Federal Board of Revenue (FBR) to enforce the sales tax immediately.
The ruling clarifies that sales tax must be applied to the total electricity supplied by DISCOs, without considering the offset from net metering—where solar panel users generate their power and reduce their grid consumption.
The FTO reaffirmed that tax calculation should be based on gross supply value, meaning all DISCOs, including K-Electric, must charge sales tax on the full electricity supplied, regardless of any net metering benefits.
Income Tax Withholding on Gross Amount
Similarly, the directive states that withholding tax under Section 235 of the Income Tax Ordinance, 2001 must also be calculated on the gross amount of electricity supplied, not on a net-metered basis.
The FTO emphasized that the National Electric Power Regulatory Authority (NEPRA) lacks authority to impose taxes. Any guidelines from NEPRA or the Alternative Energy Development Board (AEDB) cannot override the Sales Tax Act, 1990, or the Income Tax Ordinance, 2001—laws that have been upheld by the Supreme Court.
FBR to Ensure Compliance
The FTO’s directive makes it mandatory for tax authorities to enforce these tax provisions under Sections 72 of the Act and 214 of the Ordinance.
It noted that K-Electric has been correctly applying sales and income tax, whereas the other eleven DISCOs have failed to comply with the legal requirements.
Complaint Filed Against Net Metering Taxation
A KE consumer filed a complaint under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000, challenging the taxation of electricity supply without recognizing net metering offsets. The complaint claims this imposes an unfair financial burden and creates discriminatory treatment, as most DISCOs previously applied taxes based on net metering calculations.
FBR to Enforce Tax Provisions on 11 DISCOs
The FTO ordered the FBR to ensure tax enforcement for the following DISCOs:
- Faisalabad Electric Supply Company (FESCO)
- Gujranwala Electric Power Company (GEPCO)
- Hazara Electric Supply Company (HAZECO)
- Hyderabad Electric Supply Company (HESCO)
- Islamabad Electric Supply Company (IESCO)
- Lahore Electric Supply Company (LESCO)
- Multan Electric Power Company (MEPCO)
- Peshawar Electric Power Company (PESCO)
- Quetta Electric Supply Company (QESCO)
- Sukkur Electric Power Company (SEPCO)
- Tribal Electric Supply Company (TESCO)
The FTO also urged authorities to investigate the substantial revenue losses amounting to billions annually, resulting from improper tax collection in the solar net metering sector.
