The Federal Tax Ombudsman (FTO) has identified a significant revenue loss of Rs. 9.4 billion and has directed the Federal Board of Revenue (FBR) to immediately impose an 18 percent sales tax on solar net metering electricity consumers across all four provinces.

In its directive, the FTO instructed the FBR to ensure that power distribution companies (DISCOs) collect sales tax from solar panel users on the gross value of electricity supplied, disregarding net metering. Similarly, the Withholding of Income Tax under Section 235 of the Income Tax Ordinance has also been affected, resulting in a revenue loss of over Rs. 3 billion due to the misapplication of the Sales Tax law by power companies.

A complaint was filed under the Federal Tax Ombudsman Ordinance, 2000, against the alleged illegal charging of sales tax on the gross value of electricity supplied to consumers, without considering net metering. This practice was seen as a violation of NEPRA SRO 892(1)/2015 and the "Net-Metering Reference Guide for the DISCOs" issued by the Alternative Energy Development Board (AEDB). The complainant, an electricity consumer of K-Electric, argued that K-Electric was charging sales tax on the gross value of electricity supplied, unlike other DISCOs, which charge sales tax on net electricity units.

The FTO noted that FBR had previously clarified that all DISCOs, including K-Electric, are required to charge sales tax on the gross value of electricity supplied, disregarding net metering. Due to the non-enforcement of these provisions, the FBR has faced a substantial revenue loss annually (Rs. 9.38 billion during FY24).

While the complainant was unable to establish any maladministration, the FTO acknowledged the discriminatory tax treatment between K-Electric and other DISCOs.