Solar energy consumers to pay 18opc sales tax in Pakistan

The Federal Tax Ombudsman (FTO) has announced that consumers utilizing solar net metering throughout the nation will be liable for an 18% sales tax, following the identification of a substantial revenue shortfall totaling Rs9.8 billion.

According to the Business Recorder report, the FTO in a formal order directed power distribution companies (DISCOs) and the field formations of the Federal Board of Revenue (FBR) to implement these changes "without delay."

The directive specifies that sales tax must be levied on the gross value of electricity provided by DISCOs, irrespective of the net metering arrangement, which allows consumers with solar panels to offset their electricity usage with the energy they produce.

The FTO reiterated that the sales tax is "required on the total supply value, not on a net basis," indicating that all DISCOs, including K-Electric, must apply sales tax to the entire quantity of electricity supplied, ignoring any reductions from net metering.

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Furthermore, the same principles will apply to the withholding of income tax under Section 235 of the Income Tax Ordinance, 2001, which must also be calculated on the gross amount, independent of net metering considerations.

The FTO stressed that the National Electric Power Regulatory Authority "lacks the authority" to impose sales or income tax.

Any regulatory notifications or guidelines issued by Nepra or the Alternative Energy Development Board concerning taxation "cannot override" the stipulations set forth in the Sales Tax Act of 1990 or the Income Tax Ordinance of 2001.