Pakistan’s Federal Board of Revenue (FBR) has stirred controversy with a new circular that introduces sweeping changes to the taxation of solar energy, particularly for those using net metering systems.
Aimed at addressing a reported revenue shortfall of PKR 99.3 billion and standardizing tax collection across electricity distribution companies (DISCOs), this directive could impose taxes as high as 35% on solar energy consumption.
For a nation pushing toward renewable energy, this move raises serious questions about affordability, fairness, and the future of solar adoption. Let’s break it down—here’s everything you need to know as of March 03, 2025.
The Backstory: A Revenue Crisis and a Karachi Complaint
The FBR’s decision didn’t come out of nowhere. It’s a response to an estimated PKR 99.3 billion revenue loss tied to inconsistent tax practices on net metering—a system where solar panel owners export surplus electricity back to the grid to offset their bills. The spark for this circular? A complaint from a private company in Karachi against K-Electric, the city’s power provider.
The company pointed out that K-Electric was charging an 18% Goods and Services Tax (GST) plus income tax on net metering transactions—a practice allegedly not mirrored by other DISCOs like LESCO, MEPCO, or FESCO.
This disparity caught the FBR’s attention, prompting a push to bring all DISCOs in line. The result? A standardized tax regime that’s left solar users across Pakistan scrambling to understand its implications.
What’s Changing: The New Tax Breakdown
The FBR circular lays out a multi-layered tax structure for net metering customers, potentially driving the total tax burden to 35% or more. Here’s how it works:
1. 18% GST—Across the Board
- Who’s Affected: Everyone—residential, commercial, and industrial users alike.
- What It Means: This 18% GST applies to the gross value of electricity supplied by DISCOs, not the net amount after factoring in exported solar energy. No exceptions, no filer status considerations—just a flat rate.
2. Income Tax (Section 235)—Varies by Connection
- Residential Users:
- Bills under PKR 25,000: No income tax.
- Bills over PKR 25,000: Non-filers pay 7.5%, while filers can drop this to 0% by linking their National Tax Number (NTN) or ID card to their electricity account.
- Commercial Users: 12% for both filers and non-filers.
- Industrial Users: 5% for both filers and non-filers.
3. Withholding Tax (Section 153)—When You Export Power
- What It Is: This tax kicks in when DISCOs buy excess electricity from net metering users, deducted from the payment you receive.
- Rates:
- Filers: 5% for companies, 5.5% for individuals or households.
- Non-Filers: 10% for companies, 11% for individuals or households—double the filer rates.
How Does It Hit 35%?
Picture this: A non-filer with a commercial connection could face 18% GST + 12% income tax + 11% withholding tax (if exporting energy). That’s a potential 41% in extreme cases, though 35% is the figure most commonly cited, reflecting a blend of GST and income tax for typical users. Here’s a quick look:
| Connection Type | GST | Income Tax | Withholding Tax | Max Total Tax |
|---|---|---|---|---|
| Residential (Filer) | 18% | 0% (< PKR 25K) | 5.5% | 23.5% |
| Residential (Non-Filer) | 18% | 7.5% (> PKR 25K) | 11% | 36.5% |
| Commercial (Both) | 18% | 12% | 5-11% | 35-41% |
| Industrial (Both) | 18% | 5% | 5-11% | 28-34% |
Filer vs. Non-Filer: The Stakes Are High
Your tax filer status is now a game-changer. Filers—those who file income tax returns—get lower rates on income and withholding taxes, making solar energy more manageable. For residential users, registering with the FBR could wipe out income tax entirely if your bill stays under PKR 25,000. Non-filers, on the other hand, face a steeper climb, with higher rates designed to nudge people toward compliance. It’s a clear incentive—or penalty, depending on your perspective.
if you want to learn more about the pros and cons of the filer and non filer read our detail article Filer vs Non-Filer in Pakistan: Benefits, Disadvantages
The Big Unknown: When Does It Start?
Here’s where things get murky. The FBR’s 13-page circular doesn’t pin down an effective date. Will it apply from March 2025? Later? Or—worst-case scenario—could it be backdated, hitting consumers with retroactive bills for months past? Without official clarification, solar users are left guessing, and the possibility of a hefty, unexpected bill looms large.
There’s more to watch for. The circular doesn’t explicitly mention “Further Tax” or “Extra Tax,” but general FBR rules suggest these could apply to commercial and industrial users not registered for GST. If enforced, this could pile even more costs onto businesses relying on solar power.
The Fallout: What This Means for Pakistan
This new tax regime could reshape the solar landscape in several ways:
- Solar Adoption at Risk: Higher costs might scare off potential solar investors, slowing Pakistan’s renewable energy progress just as it’s gaining momentum.
- Pocketbook Pressure: Non-filers, especially, will feel the pinch, with electricity bills climbing sharply.
- Confusion Central: With different rates for filers, non-filers, and connection types, navigating this system could be a headache for consumers and DISCOs alike.
- Uncertainty Ahead: No clear start date or word on backdating leaves everyone in limbo.
What Can Be Done?
This isn’t set in stone yet—there’s room to push back and plan ahead. Here are some steps to consider:
- Demand Clarity: The FBR needs to specify the effective date and rule out retroactive billing. Solar users deserve answers.
- Spread the Word: Public awareness campaigns could help people understand these changes and the perks of filing taxes.
- Rethink the Approach: The FBR should weigh the risk of derailing solar growth and explore other ways to boost revenue without taxing green energy so heavily.
- Show the Math: Clear, real-world examples of how these taxes hit different users—say, a Karachi household vs. a Lahore factory—would cut through the confusion.
Example Scenarios
- Residential Filer (Bill: PKR 20,000): 18% GST (PKR 3,600) + 0% income tax + 5.5% withholding tax on PKR 5,000 exported (PKR 275) = PKR 3,875 total tax.
- Commercial Non-Filer (Bill: PKR 50,000): 18% GST (PKR 9,000) + 12% income tax (PKR 6,000) + 11% withholding tax on PKR 10,000 exported (PKR 1,100) = PKR 16,100 total tax.
Keep an eye on updates from the FBR and your local DISCO. Talk to a tax expert to see how this hits your specific setup. And if you’re worried, let your voice be heard feedback to regulators could shape a fairer outcome.
