The Federal Tax Ombudsman (FTO) recently (February 21, 2025) ruled to impose General Sales Tax (GST) on the gross electricity units imported by net-metering consumers without credit for exported units. This decision contradicts fundamental taxation principles, discourages renewable energy investments, and unfairly burdens solar energy adopters.
The ruling fails to recognize that exported solar energy units function as “goods returned” under taxation principles. If imported electricity is taxable, exported units should be deducted before calculating GST liability. By charging GST on gross imports without considering exports, the ruling effectively results in double taxation, violating the principle that returned goods should not be taxed.
This decision disregards Pakistan’s taxation laws and legal precedents. The Sales Tax Act, 1990, defines GST as a value-added tax applicable only to final consumption. Sections 3 and 7 of the Act state that tax should be charged on net supply, not transactions where input and output nullify each other. The FTO’s ruling misapplies these provisions, making it legally questionable. Such type of decisions also reflect a brazen ignorance about the modern world concepts of Society 5.0 where well being of the people remains the focal point of institutional governance and policy formulation.
Globally, value-added tax systems, including those in the European Union and the United States, allow credit for returned goods to prevent undue financial burdens. Pakistan’s Federal Board of Revenue (FBR) has similarly allowed refunds or offsets in cases of returned goods. Denying net-metering consumers this credit reflects inconsistency in tax policy. 
The ruling discourages solar energy investments by increasing costs for individuals and businesses adopting renewable energy. Taxing gross imports contradicts government commitments to promoting clean energy and risks stalling the expansion of the solar sector. This flawed framework may push consumers toward off-grid solutions, reducing reliance on the national energy infrastructure and worsening financial strain on power distribution companies. Given that electricity tariffs include significant capacity payments to Independent Power Producers (IPPs), this decision exacerbates financial inefficiencies.
Pakistan is already facing an energy crisis with some of the highest electricity tariffs in the region. Consumers’ ability to pay has deteriorated due to eroded disposable incomes and worsening economic conditions. Rising electricity costs have led to increasing defaults, power theft, and greater dependence on alternative energy. Unjust taxation on solar energy will only worsen economic distress and social inequalities.
The high cost of electricity is a critical issue, as rising tariffs, fixed capacity charges, and inefficiencies in the power sector have made electricity unaffordable for many, hindering economic growth. With inflation at record levels, any additional tax burden further destabilizes the economy. Instead of penalizing renewable energy adopters, the government should promote solar energy to reduce dependence on costly fossil fuel-based power generation.
The FTO’s ruling also undermines Pakistan’s international commitments under the Paris Agreement to expand renewable energy and reduce carbon emissions. By disincentivizing net-metering, the decision indirectly increases reliance on fossil fuels, reversing progress toward sustainability goals. Given Pakistan’s pledge to enhance renewable energy capacity, this decision sets a regressive precedent.
From an administrative perspective, taxing gross electricity imports without crediting exports introduces inefficiencies into the tax system. Net metering operates on a bidirectional flow of electricity, and imposing a flat GST on gross imports complicates compliance for consumers and distribution companies. By failing to align GST with net-metering mechanisms, the FTO has increased tax compliance complexity, leading to potential disputes and litigation that will further burden Pakistan’s already overloaded legal system.
The ruling also deviates from global best practices. Most developed countries apply VAT on net energy consumption rather than gross imports. The European Union and the United States follow taxation principles that promote renewable energy investments through financial incentives. The FTO’s decision not only sets a harmful precedent but also deters foreign investment in Pakistan’s renewable energy sector by worsening the investment climate.
Before 20th of March 2025, the National Electric Power Regulatory Authority (NEPRA) or the Federal Government must make a Representation to the President to overturn the FTO’s order under Section 32 of the “Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.” At this juncture, government intervention is essential to ensure fair taxation, maintain renewable energy incentives, and protect consumer rights. This appeal is crucial to preserving investor confidence and ensuring that consumers are not unfairly taxed for contributing clean energy to the national grid.
Ultimately, the FTO’s decision must be immediately reversed to ensure a fair and rational taxation policy. Policymakers should adopt a framework that promotes rather than penalizes sustainable energy investments. Immediate corrective action is necessary to safeguard consumer rights, encourage renewable energy growth, and maintain an investment-friendly economic environment. A just tax system should facilitate economic progress, not hinder it. The government must recognize the importance of balancing national energy goals with a fair taxation structure, ensuring an equitable tax policy, restoring investor confidence, avoid DISCOs loosing consumers, save solar consumers from incurring additional costs in going off-grid and secure Pakistan’s long-term commitment to renewable energy expansion. The write is: an energy lawyer and President of Consumer Rights Advocacy (CRA). He can be reached at email: [email protected] or cell No. 03335191381. ( This article reflects author’s opinion and not necessarily the views of WNAM )
