Solar net metering consumers: Discovering Rs9.8bn loss, FTO orders 18pc GST levy

ISLAMABAD: The Federal Tax Ombudsman (FTO) discovering huge revenue loss of Rs9.8 billion, passed the order for charging 18 percent sales tax from solar net metering electricity consumers across the country.

The same is the position with respect to Withholding of Income Tax under section 235 of the Income Tax Ordinance.

In this regard, the FTO has issued instructions to the power distribution companies and FBR’s field formations for immediate implementation here on Monday.

‘Fake’ imports of solar panel: PCA unearths Rs106bn money laundering

The FTO has also declared that the sales tax will be charged @ 18% on a taxable supply made by the DISCOs and there is no concept of net metering (net of the KWh supplied by the consumers having solar panels against the KWh supplied by the DISCOs) under provisions of the Sales Tax Act.

The FTO has referred to the FBR’s instructions that the sales tax is required to be charged on the value of supply and not the net off value.

Therefore, it is clarified that all DISCOS including K-Electric are required to charge Sales Tax on the gross amount of value of electricity supplied to the consumers without having any effect of net metering.

The same is the position with respect to Withholding of Income Tax under Section 235 of the Income Tax Ordinance, 2001. It is required to be withheld on the gross amount without having any effect of net metering, the FBR added.

The FTO order stated that National Electric Power Regulatory Authority (Nepra) is the authority related to the determination of tariffs on the supply of electric power and does not have any authority to charge sales tax or income tax.

Therefore, any SRO issued by the Nepra and guidelines issued by the AEDB on the issue of changeability of tax cannot override the provisions of the Sales Tax Act 1990 or Income Tax Ordinance 2001 which are fiscal laws/special laws and bear overriding effect to general law or any other regulations like Nepra or AEDB guidelines already settled by Supreme Court of Pakistan, the FTO maintained.

The instructions/direction of the FBR are binding and all tax authorities employed in the execution of this Ordinance/Act shall observe and follow the orders, instructions, and directions issued by the Board in terms of section 72 of the Act and 214 of the Ordinance.

Thus it can be established without any doubt that K-Electric has been charging sales tax and income tax on electricity bills as per legally correct provisions of the law. On the contrary, all other eleven DISCOs are not following the legally correct provisions of the law while collecting sales tax and income tax from the electricity consumers.

The complaint has been filed in terms of section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) against the alleged illegal charging of sales tax on the gross amount of value of electricity supplied to the consumer without considering the concept of net metering in violation of NEPRA SRO 892(1)12015 dated 01.09.2015 and “Net-Metering Reference Guide for the DISCOs” issued by the Alternative Energy Development Board (AEDB) causing undue financial burden and resulting discriminatory treatment when it was being charged on net metering basis by other DISCOs against electric consumers all over Pakistan.

Briefly, the complainant is an electric consumer of K-Electric; one of Pakistan’s twelve distribution companies (DISCOs). The complainant installed solar panels in terms of the framework prescribed by Nepra for regulation of Distributed Generation by using alternative and renewable energy and net metering under SR0892(l)/201 5 dated 01.09.2015.

The FBR will direct the concerned Commissioners-IR having jurisdiction over the following DISCOs to enforce legal provisions of law strictly related to tax treatment on net metering as clarified by Board immediately:

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) and Tribal Electric Supply Company (TESCO).

The FTO should initiate an inquiry over the huge loss of govt revenue in billions every year, the order added.

Copyright Business Recorder, 2025