No Concept of Net Metering Under Sales Tax Provisions; Sales Tax Must Be Collected on Supply, Not Net-Off Value – Federal Tax Ombudsman
Islamabad ( Web News )
The Federal Tax Ombudsman (FTO) has issued a decision to collect 18% sales tax from electricity consumers using solar net metering.
According to media reports, the FTO stated in its decision that all electricity distribution companies must collect 18% sales tax on the supply of electricity. K-Electric must also collect the 18% sales tax from consumers.
The FTO clarified that electricity distribution companies should not be influenced by net metering when collecting sales tax. It further noted that government distribution companies (DISCOs) are not properly collecting taxes from consumers as per the law.
The FTO stated that the non-collection of taxes according to the law results in an annual loss of 9.38 billion rupees to the national treasury. Government distribution companies are failing to collect the full amount of sales tax from electricity consumers.
The FTO has recommended that the Federal Board of Revenue (FBR) investigate this matter, as it is causing losses to the national treasury. The FBR has been directed to complete its investigation and submit a report within 60 days.
According to the FTO, K-Electric is correctly collecting 18% sales tax from its consumers. The FTO further clarified that under sales tax provisions, there is no concept of net metering. Sales tax should be collected on the total supply rather than being adjusted based on net-off value. It must be deducted on the gross amount without considering the effects of net metering.
The FTO ruled that all DISCOs must collect sales tax without considering the impact of net metering, and sales tax must be applied to the total electricity supply provided to consumers.
The FTO’s decision stated that K-Electric is collecting sales tax correctly as per legal provisions, and it is properly applying tax on electricity bills.
It is worth mentioning that a K-Electric consumer had filed a complaint with the FTO regarding tax collection on total electricity supply.