Taxing solar panels to backfire as Pakistan needs time to bolster manufacturing: Experts

Energy experts believe that the imposition of General Sales Tax (GST) on the import of solar panels, regardless of the final tax rate decided by the federal government, will not slow down Pakistan’s accelerating transition to renewable energy.

Moreover, contrary to the government’s assumption that the imposition of GST would promote domestic industry, experts argue that the move would backfire as the local industry remains underdeveloped and is presently unable to meet the market demand.

The remarks were made by clean energy experts, industrialists, climate activists, and renewable energy traders during a webinar titled “Taxing the Sun: Will Solar Still Shine in Pakistan?”, jointly organised by Energy Update and Pakistan Solar Association (PSA).

During the webinar, participants examined the federal government’s recent budgetary proposal to impose GST on solar panels.

The government in its federal budget proposed to impose an 18% GST on solar panels imported. This sparked considerable debate; however, after consultations, the government decided to lower the rate to 10%.

Waqas Moosa, PSA Chairman, highlighted that the decade from 2020 to 2030 has been globally recognised as a pivotal era for transitioning to clean energy.

He indicated that Pakistani consumers would persist in embracing solar energy to power their homes and businesses, regardless of the added cost from GST.

Moosa, however, cautioned that Pakistan’s local industry is not yet sufficiently developed to meet the growing demand for advanced solar panels in adequate quantity.

“As such, relying solely on local production at this stage could risk stalling progress.”

Moosa strongly criticised the proposal to tax imported solar panels, calling it a serious setback to Pakistan’s efforts in combating the climate crisis.

“Whether or not a tax is implemented”, he said, “Domestic consumers will continue shifting to solar energy due to persistent power shortages and unaffordable electricity tariffs from the national grid.”

Muhammad Zakar Ali, CEO of Inverex Solar Energy, also echoed similar sentiments.

He said that the vast majority of electricity users in Pakistan will continue to transition away from grid-supplied electricity, regardless of tax implications.

Ali argued that Pakistan needs a minimum of 18-24 months to establish a viable local industry capable of producing clean energy equipment at scale.

Imposing a tax prematurely could deter both domestic and international investors, he warned.

He further noted that high electricity tariffs for industrial users could discourage investment in solar panel manufacturing plants.

Ali, however, remained optimistic that prospective Chinese investors would soon launch joint ventures with Pakistani industrialists to set up such facilities.

The Inverex CEO explained that establishing local solar panel manufacturing plants could lead to the development of five supporting vendor industries, significantly boosting the clean energy supply chain in Pakistan.

Pakistan’s solar surge lifts it into rarefied 25% club

Dr Khalid Waleed, Research Associate at the Sustainable Development Policy Institute (SDPI), believed that the surge in rooftop solar installations in urban centres presents an opportunity for Pakistan to earn carbon credits on the global climate finance market.

During the webinar, Tanveer Barry, Former Vice President Karachi Chamber of Commerce and Industry (KCCI), pointed out that while Pakistan’s installed electricity generation capacity exceeds 45,000 megawatts (MW), only around 27,000 MW are currently deliverable to end-users due to outdated and overburdened transmission infrastructure.

Barry also highlighted the immense untapped potential for solar energy adoption among off-grid rural households and agricultural communities across the country.