In a key development on the renewable energy front, the Federal Tax Ombudsman (FTO) ordered that solar net metering consumers in Pakistan pay an 18% sales tax.
The decision was made after discovering a significant revenue loss of approximately Rs9.8 billion, as reported by Business Recorder on Tuesday.
Under the ruling, the sales tax will be applied to the total amount of electricity supplied by power distribution companies (DISCOs), without considering the net metering arrangement.
This means that consumers will be taxed on the full amount of electricity they receive, not just the net amount after accounting for the power they generate and feed back into the grid, according to the report.
Similarly, income tax withholding under Section 235 of the Income Tax Ordinance will also be calculated on the gross amount of electricity supplied, not the net metered value.
Energy sector experts, including Dr Khalid Waleed, a research fellow at the Sustainable Development Policy Institute (SPDI) weighed in on the decision.
“Rules suggest that sales tax should be charged from total energy supplied or gross consumption. This means that the net meters are liable to pay more taxes, which would discourage net metering,” Dr Khalid told Business Recorder.
The energy expert said the government faces a dilemma as it seeks to discourage net metering to boost grid demand.
“Net metering could be used as an effective tool, one way to optimize is to bring in more residential consumers towards net metering while using industrial consumers to bridge the national grid’s demand gap,” he said.
Asad Ali, a research analyst covering the energy chain at Insight Securities, described the decision as ‘negative’ for consumers, as it would likely lead to higher electricity costs. However, he noted that it was neutral for DISCOs, as it falls under sales tax.
The analyst noted that although the government remains committed to raising solar energy, the country’s energy system remains burdened by capacity payment issues.
“There has been a significant increase in net metering in Pakistan. However, the country’s energy system remains entrapped in capacity payment issues.
“The rapid growth in net metering challenges the government’s objective of selling more electricity from the grid,” said Ali.
In recent years, solar energy has made rapid strides in Pakistan with an estimated 22 gigawatts of solar panels imported in 2024 alone, making the country one of the most promising solar markets in the region.
Addressing the audience at Karachi Literature Festival (KLF) earlier this month, senator and climate advocate Sherry Rehman lauded the “solar revolution” currently underway in Pakistan, citing how “an enabling policy known as net metering has driven this change.”
“In just one year we have built one-third of our capacity by importing panels from China,” she said, adding how there is no reason why Pakistan cannot meet their climate goals by 2060.
On the other hand, Samiullah Tariq, Head of Research at Pakistan Kuwait Investment Company (Private) Limited, that the latest tax decision would not significantly impact solar consumers.
“We were already paying GST on the gross units rather than net units in Karachi, so the imposition of GST will not deter those looking to set up solar systems,” he told Business Recorder.
Similar sentiments were echoed by Tahir Abbas, Head of Equities at Arif Habib Limited (AHL). He said that the pace of solarization in Pakistan would continue, as the electricity rate remains “too high in the country”.
“However, if the government reduces tariffs, it could slow solar adoption as consumers will remain reliant on the national grid,” he said.
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