New Captive Power Levy Billing Starts February 2025

The federal government has mandated gas utilities to commence billing of captive power consumers under the Grid (Captive Power Plants) Levy Ordinance, 2025, effective for February 2025, introducing a new tax burden for industrial users. Our tax law firm urges clients to address the compliance challenges and fiscal implications of this levy to avoid penalties from regulatory authorities.

The Ministry of Energy (Petroleum Division) directive, enforcing Section 3 of the ordinance, imposes a levy on gas consumption by captive power plants not connected to the national grid, requiring gas distribution companies to ensure immediate compliance and report billed amounts to authorities. This aligns with energy sector reforms aimed at discouraging inefficient captive power generation, pushing industries toward the national electricity grid, as part of broader IMF-driven policies, per web sources like Dawn, which note similar shifts to optimize gas allocation.

From a tax law perspective, this new levy functions as a federal excise duty, necessitating strict compliance with Federal Board of Revenue (FBR) reporting requirements. Industrial clients must integrate the levy into their cost structures, potentially claiming it as a deductible expense under Section 29 of the Income Tax Ordinance, provided proper documentation is maintained. The shift to the national grid may also increase electricity expenses, affecting input tax credits for VAT-registered entities, requiring reconciliation with FBR to avoid disallowances. Non-compliance risks penalties, typically 5% default surcharges or Rs10,000 per instance, based on historical FBR enforcement patterns.

Critically, the establishment narrative of “energy efficiency” may oversimplify the intent—web reports like The Express Tribune suggest this levy also serves to boost revenue amid fiscal pressures, potentially burdening industries already facing high energy costs. Clients should anticipate future levy hikes as part of ongoing reforms, necessitating proactive tax planning.

Our firm advises clients to review gas consumption records, ensure levy compliance, and optimize tax deductions, preparing for FBR scrutiny in this evolving energy tax landscape.