Karachi, February 25, 2025 – The Federal Tax Ombudsman (FTO) has identified a staggering annual revenue loss of Rs 9.38 billion to the Federal Board of Revenue (FBR) due to discrepancies in the collection of electricity tax across the country.
This discovery has prompted urgent directives for corrective action to ensure tax compliance by power distribution companies.
The FTO’s findings emerged during an investigation into complaints against K-Electric, which highlighted inconsistencies in the implementation of FBR’s tax directives. While K-Electric adhered to the taxation guidelines, the report revealed that other electricity distribution companies failed to implement the required tax collection measures effectively.
Following its investigation, the FTO issued an order directing that all power distribution companies must charge an 18% sales tax on taxable electricity supplies, including those under solar net metering. The report emphasized that sales tax must be levied on the gross value of electricity supplied, rather than the net metering adjustments applied to consumer bills.
The FBR has also reiterated that withholding tax under Section 235 of the Income Tax Ordinance, 2001, must be collected on the full electricity bill amount, without deductions based on net metering offsets. In response, the FTO instructed power distribution companies and FBR’s regional field offices to immediately implement these taxation guidelines to prevent further revenue losses.
The FTO further clarified that the National Electric Power Regulatory Authority (NEPRA) does not have jurisdiction over taxation matters. Any previous regulatory guidelines or SROs issued by NEPRA or the Alternative Energy Development Board (AEDB) cannot override the provisions of the Sales Tax Act, 1990, or the Income Tax Ordinance, 2001. The FTO emphasized that the Supreme Court of Pakistan has already ruled on the supremacy of fiscal laws over regulatory directives.
As per the FBR’s mandate, all power distribution companies, including K-Electric and eleven other DISCOs, must now align their tax collection mechanisms with federal tax laws. The affected companies include Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO), Hazara Electric Supply Company (HAZECO), Hyderabad Electric Supply Company (HESCO), Islamabad Electric Supply Company (IESCO), Lahore Electric Supply Company (LESCO), Multan Electric Power Company (MEPCO), Peshawar Electric Power Company (PESCO), Quetta Electric Supply Company (QESCO), Sukkur Electric Power Company (SEPCO), and Tribal Electric Supply Company (TESCO).
The FTO’s order has called for a comprehensive inquiry into the systemic failure of tax compliance by these DISCOs, stressing that the FBR must take immediate corrective action. This failure has led to billions in lost revenue annually, placing an undue financial burden on the national economy.
The FBR has now been instructed to strictly enforce the taxation rules and ensure that all power distribution companies adhere to legal provisions regarding tax collection on net-metered electricity supplies. Failure to comply will result in regulatory actions and possible penalties against the non-compliant entities.
The FTO’s findings have reignited concerns about tax enforcement in the energy sector, highlighting the urgent need for greater transparency and accountability. With billions in revenue at stake, the FBR is now under pressure to implement strict monitoring mechanisms to prevent further financial losses and ensure full compliance with federal tax laws.
