The Union of Small and Medium Enterprises (UNISAME) has urged Small and Medium Enterprises Development Authority (SMEDA) CEO Socrat Aman Rana to take notice of a recent ruling of the Federal Tax Ombudsman (FTO) directing all power distribution companies to collect 18% sales tax on electricity supply without adjusting for net metering.
In a statement, the UNISAME has requested Rana to apprise Prime Minister Shehbaz Sharif that entrepreneurs have installed solar systems with personal investments and are not selling excess power to the grid, but rather “depositing” it for later reclamation. “It is an entrustment,” they have said, stressing that religious scholars have stressed on the sanctity of “Amanat.”
Noting that distribution companies “buy” electricity at lower rates than what is sold back to consumers, they have claimed this treats the process as a commercial transaction. Only electricity that is provided from the grid in excess of that “deposited” should be charged as per normal tariff, they have said. The name of the practice, net metering, itself implies that the portion deposited in the grid is an entrustment, they maintain.
UNISAME President Zulfikar Thaver appreciated the role of the FTO and its role in ensuring relief, but stressed that its decision on the imposition of sales tax ran counter to its stated aims. Maintaining that the very concept of sales tax discourages spending, he said it was a burden on consumers. He recalled it was originally meant to tax consumption and discourage consumption of luxuries, but has since become a tool for revenue generation that avoids increasing the tax net and going after evaders.
The country is facing insufficiency of electricity and alternate energy needs promotion, said UNISAME. Pakistan, it said, should promote and facilitate alternate systems of power generation and encourage entrepreneurs to install solar systems to make electricity sufficient and affordable.
The UNISAME statement concludes with a call for policymakers to exempt electricity from sales tax, stressing it falls under essential goods and services.