In a recent directive, Pakistan’s Federal Tax Ombudsman (FTO) has instructed eleven power distribution companies (Discos) to levy an 18% general sales tax (GST) on the total value of electricity supplied to consumers, disregarding net metering deductions. This decision aims to standardize tax collection across all Discos and address significant revenue losses attributed to the current net metering practices.
The ruling emerged from a complaint by a K-Electric consumer who argued that, unlike other Discos, K-Electric was charging GST on the gross electricity supplied without accounting for the net metering system. Net metering allows consumers with solar panels to offset their electricity consumption by feeding surplus energy back into the grid, effectively reducing their bills. The complainant highlighted that this discrepancy led to higher electricity costs for K-Electric consumers compared to those served by other Discos.
Upon investigation, the FTO discovered that the existing net metering deductions had resulted in a revenue loss of approximately Rs9.4 billion in seven Discos during the fiscal year 2024. Additionally, the misapplication of sales tax laws led to a further loss of over Rs 3 billion in withholding tax under Section 235 of the Income Tax Ordinance.
The FTO emphasized that the Federal Board of Revenue (FBR) had previously clarified the necessity for all discos, including K-Electric, to charge GST on the gross amount of electricity supplied, irrespective of net metering. Despite this clarification, eleven Discos failed to implement the directive, contributing to substantial revenue deficits.
This decision underscores the government’s commitment to uniform tax enforcement in the energy sector, ensuring equitable treatment of all consumers and bolstering national revenue.
