Power Companies to Charge Sales Tax Without Considering Net Metering

The Federal Tax Ombudsman (FTO) has discovered a huge revenue loss of Rs. 9.4 billion and passed an order to the Federal Board of Revenue (FBR) to immediately charge an 18 percent sales tax from solar net metering electricity consumers in all four provinces.   In its order, FTO has directed FBR to enforce collection of sales tax from consumers of solar panels by all power distribution companies (DISCOs) on the gross amount of value of electricity supplied 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. So far, the FBR has lost revenue of over Rs. 3 billion due to wrong application of Sales Tax law by power companies.   A complaint was 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 and “Net-Metering Reference Guide for the DISCOs” issued by the Alternative Energy Development Board (AEDB) causing undue financial burden and resulting in discriminatory treatment when it was being charged on net metering basis by other DISCOs against electricity consumers all over Pakistan.   The complainant, an electricity consumer of K-Electric, one of Pakistan’s twelve distribution companies (DISCOs) 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)/2015.    As per the complainant, K-Electric was illegally charging sales tax on the gross amount of value of electricity supplied to the consumer without considering the concept of net metering. On the contrary, all other DISCOs are charging sales tax on net electricity units i.e.; net of the KWh supplied by the consumers having solar panels against the KWh supplied by the DISCOs. Thus, the complainant claimed that tax treatment on net metering electricity bills is discriminatory as the consumers of K-Electric are forced to pay high electricity bills compared to consumers of all other eleven DISCOs.   FTO said that in the past, FBR has clarified that all DISCOs including K-Electric are required to charge sales tax on the gross amount of value of electricity supplied without having any effect of net metering.   The FBR has been deprived of the huge loss of government legitimate revenue every year (Rs. 9.38 billion during FY24) due to non-enforcement of the provisions of laws despite clear direction issued by FBR due to neglect, inattention, delay, incompetence, inefficiency, and ineptitude, in the administration.   Moreover, the complainant failed to establish any maladministration in terms of section 2(3) of the FTO Ordinance because K. Electric has been correctly following the legal provisions of laws concerning taxation treatment on net metering under the supervision of LTO Karachi except the ground of discrimination raised by the complainant, FTO said.