Power distribution companies (DISCOs) throughout Pakistan have been instructed by the Federal Tax Ombudsman (FTO) to charge an 18 percent sales tax on electricity delivered to customers who use solar net metering.

Rejecting the former practice of net metering deductions, the FTO directed the Federal Board of Revenue (FBR) and DISCOs to make sure the tax is imposed on the gross value of power delivered in an order released on Monday.

The directive clarified that under the Sales Tax Act 1990, net metering adjustments are not recognized, and taxes must be charged on the total electricity provided by distribution companies, regardless of any surplus power fed back into the grid.

Section 235 of the Income Tax Ordinance 2001, which requires income tax to be withheld on the gross amount rather than the net metered value, is likewise covered by the order. The FTO argues that fiscal laws supersede regulatory regulations, overriding earlier instructions from the Alternative Energy Development Board (AEDB) and the National Electric Power Regulatory Authority (NEPRA).

According to the FTO report, only K-Electric had been regularly collecting both sales and income tax on power bills, while 11 of the nation’s 12 DISCOs had disregarded the law’s tax requirements. The ruling comes after a K-Electric customer filed a complaint alleging discriminatory treatment, claiming that NEPRA’s 2015 framework permitted