The Fiscal Laws specifically the Sales Tax Act, 1990, and the Income Tax Ordinance, 2001 should prevails over General Regulatory Guidelines issued by NEPRA or AEDB --- Federal Tax Ombudsman (FTO)
Islamabad 11-03-2025: The Federal Tax Ombudsman (FTO), Mr. Dr. Asif Mahmood Jah Hon’ble Federal Tax Ombudsman (FTO), recently issued a landmark judgment highlighting a substantial annual loss of approximately Rs. 9.376 billion to the national exchequer due to inconsistent tax practices by electricity distribution companies (DISCOs) across Pakistan. The judgment addressed the discriminatory and legally incorrect application of sales tax and withholding income tax on electricity consumers utilizing solar panels under net-metering arrangements.
The Complaint originated from a consumer of K-Electric, alleging that charging sales tax on the gross electricity supplied, rather than net units consumed, violated regulations set forth by the National Electric Power Regulatory Authority (NEPRA) and the Alternative Energy Development Board (AEDB). However, after careful examination, the Federal Tax Ombudsman (FTO) determined that K-Electric was correctly adhering to the explicit instructions provided by the Federal Board of Revenue (FBR) dated November 12, 2020, mandating tax collection on gross electricity supplied without offsetting exported solar energy units.
The Ombudsman emphasized the supremacy of fiscal laws specifically the Sales Tax Act, 1990, and the Income Tax Ordinance, 2001 over general regulatory guidelines issued by NEPRA or AEDB, a principle supported by Supreme Court of Pakistan precedents such as Gulistan Textile Mills Vs. Soneri Bank (2018 CLD 203) and Riaz Bottler (Pvt.) Ltd. [Civil Petition No.3200-L/2019].
The judgment identified maladministration by tax authorities in their persistent failure to enforce the FBR directive across eleven other DISCOs, causing substantial financial losses to the government annually. Consequently, the Federal Tax Ombudsman (FTO) recommended immediate enforcement of correct tax treatment as clarified by the FBR across all DISCOs, initiation of an inquiry into the revenue losses, and submission of a detailed compliance report within sixty days.
This decision not only reiterates the binding nature of FBR clarifications on tax authorities but also mandates strict adherence to fiscal statutes, highlighting the critical need for administrative accountability and uniformity in tax enforcement across Pakistan.
