Rising Electricity Costs in May: Tax Deduction Strategies

Consumers face higher electricity bills in May 2025 due to a drop in hydropower generation and increased reliance on expensive fuels, a shift that raises significant tax considerations for businesses. Our tax law firm warns clients to prepare for increased deductible expenses and ensure compliance with Federal Board of Revenue (FBR) regulations amidst these rising costs.

The National Power Control Centre (NPCC) General Manager, during a NEPRA public hearing, attributed the cost surge under the Fuel Cost Adjustment (FCA) for April to a 20% rise in power demand and reduced hydropower output, forcing reliance on costly thermal plants. The Central Power Purchasing Agency Guarantee Limited (CPPA-G) proposed a Rs0.0309/unit reduction in FCA, but NEPRA clarified that, after a negative FCA refund of Rs0.4641/unit in April, the net impact will be a Rs0.4332/unit increase for consumers in May, adding to operational expenses.

The Neelum-Jhelum hydropower project remains offline, exacerbating the reliance on expensive fuels, with NPCC and CPPA-G CEO Rihan Akhtar warning of further FCA hikes in the coming months. However, a quarterly adjustment for Q3 FY2024-25 offers a potential Rs1.50/unit relief over three months, totaling Rs51.493 billion, pending NEPRA approval, which could offset some taxable expenses for businesses.

From a tax law perspective, the net FCA increase impacts deductible electricity expenses under Section 29 of the Income Tax Ordinance, particularly for industrial and commercial clients. The shift of captive power plants to the grid, as noted by Amir Sheikh, and the lack of transparency in indigenous gas and RLNG reallocation, may affect Fuel Price Adjustment (FPA) refunds, potentially impacting tax credits. Clients must also ensure compliance with FBR guidelines on expense reporting, especially with NEPRA’s scrutiny of HESCO, MEPCO, and KESCO for absent officials.

Our firm advises clients to track electricity costs, adjust tax filings for increased deductions, and prepare for FBR compliance, while monitoring NEPRA’s final decisions for potential cost relief opportunities.