Pakistan has made remarkable progress in adopting solar energy, expanding its solar capacity with substantial contributions from private companies and government subsidies.
Recently, the Federal Tax Ombudsman (FTO) issued a directive mandating all power distribution companies (DISCOs) across the country to impose an 18% sales tax on electricity provided to consumers utilizing solar net metering.
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According to the ruling, the tax will be applied to the total electricity supplied, including any surplus energy fed back into the grid. It further clarified that net metering adjustments cannot lower the taxable amount, meaning the tax will be levied on the full electricity consumption rather than just the net usage.
Additionally, the decision mandates that income tax under Section 235 of the Income Tax Ordinance 2001 be deducted from the gross electricity value instead of the net metered amount.
This ruling was prompted by a complaint from a K-Electric consumer, who claimed that while the company was charging both sales and income tax on bills, other DISCOs were not following the same practice.
An investigation revealed that K-Electric was the only company complying with tax regulations, whereas 11 other DISCOs, including LESCO and IESCO, had failed to adhere to these legal requirements.
The decision is expected to impact thousands of solar consumers who turned to net metering as a sustainable and cost-effective alternative to conventional electricity.
The Federal Board of Revenue (FBR) has been directed to ensure immediate compliance from all DISCOs and investigate the reasons behind their non-compliance. The industry now awaits responses from FBR and NEPRA as stakeholders prepare for the potential consequences of this decision.
