Imported renewable energy technologies: government withdraws duties, taxes

The government has withdrawn all duties and taxes on imported renewable energy technologies, however, five per cent duty on imported solar photovoltaic (PV) panels will remain, official sources told Business Recorder.
The decision was taken by the Economic Co-ordination Committee (ECC) of the cabinet in its meeting on March 1, 2011 presided over by the Minister for Finance, Dr Abdul Hafeez Shaikh, while reviewing the implementation status of the decision earlier taken on February 1, 2011.
Ministry of Environment reported that FBR was requested on February 8, 2011 to issue the required SRO to implement the decision of ECC. The Ministry argued that in order to benefit renewable energy technology, the tax/customs duty on renewable energy equipment must be zero per cent. ECC maintained that solar panels are locally manufactured, therefore, five per cent duty on the equipment is justified and imposed zero duty on other renewable energy projects.
The ECC decided to amend its earlier decision of February 1, 2011 as follows: Approved are all duties/taxes on import, including customs duty, sales tax on import including sales tax on value addition at import and subsequent supply, special excise duty, withholding and income tax etc, on the items with dedicated use of renewable sources of energy like solar and wind etc even if locally manufactured are withdrawn with immediate effect, on LVD induction lamps, SMD, LEDs with or without ballast with fittings and fixtures, wind turbines including alternators and mast, solar torches, lanterns and related instruments, PV modules along with related components including inventors, charge controllers and batteries.
An incidence of only 5 per cent customs duty will exist on import of solar PV panels only. The ECC directed FBR to expedite issuance of SRO in the light of decision after meeting all codal formalities. According to official documents, on February 1, 2011, the ECC was informed that the present traditional available energy resources in the country are very limited as compared to energy demand. Renewable energy resources are environment friendly but remained under developed due to a variety of reasons.
It was also stated that one of the reasons is high duties and taxes, which makes these technologies cost intensive and discourage potential investors. In this context, it was stated that presently, duties and taxes on renewable energy technologies/equipment including solar photovoltaic (PV) panels/modules are around 28 per cent and include 5 per cent customs duty, 16 per cent sales tax, 2 per cent commercial sates tax, l per cent regulatory duty and 4 per cent income tax.
It was further stated that National Energy Conservation Centre (ENERCON), held extensive deliberations and undertook inspections and site visits to come up with viable recommendations for promotion of solar PV panels/modules, Low Voltage Discharge (LVD) induction lamps, Surface Mounted Devices of Light Emitting Diodes (SMD LEDs), with or without ballast with fittings and fixtures, fully assembled wind turbines including alternators and mast, solar torches and lanterns and other energy efficient lighting systems with light fittings and fixtures to facilitate their wide spread use in the country.
However, ECC was informed that to review and rationalise the current tax structure for this sector, a consultative meeting was held with concerned organisations including Ministry of Finance, Federal Board of Revenue (FBR), Alternate Energy Development Board (AEDB), Engineering Development Board (EDB), Renewable Energy Association of Pakistan (REAP), etc on 23rd June 2010, chaired by the Federal Minister for Environment.
It was recommended in the meeting that for promoting clean and sustainable energy technologies, taxes and duties except 5 per cent customs duty of solar PV panels/modules may be withdrawn. The 5 per cent customs duty was agreed to be retained as such to incentivise the local manufacturers. It was also agreed that to ensure quality of the solar PV panels/modules for the end users, the equipment and systems may be tested and certified by the concerned certification authorities.
It was stated that the proposals regarding the withdrawal of sales tax, commercial sales tax and regulatory duty etc were circulated to all stakeholders. All organisations endorsed the proposal except FBR, who argued that tax under section 148(1) of the Income Tax Ordinance 2001 is deductible at the rate of 5 per cent on imports. Since such tax deducted on imports by commercial importers constitutes "final" tax liability, therefore, it is regretted that the subject request for exemption of withholding tax on imports of items mentioned in the proposal cannot be supported.
FBR supported the proposal of withdrawal of 16 per cent sales tax, 2 per cent commercial sales tax and 1 per cent Regulatory Duty on the renewable energy technologies as it will make the use of these technologies affordable as well as help the country to overcome energy crises.
Ministry of Environment argued that FBR's observations of withdrawal of all but 5 per cent Customs Duty would result in a Return on Investment (RoI) period of 4 years. While exemption of all taxes but 5 per cent Customs Duty and 4 per cent Withholding Tax shall result in RoI period of 6 years. This shall result in discouragement of investment in renewable/energy conservation technologies. However, it was also emphasised that the reduction in duties shall make environment friendly renewable energy technologies affordable to general public and commercial ventures, save operational costs and reduce dependence on imported fossil fuels and serve the national interest. In addition, it would address the growing environmental concerns and meet international obligations and attract foreign direct investment. And have a direct positive impact on the ongoing energy crisis.
Ministry of Environment proposed that 5 per cent customs duty, l6 per cent sale tax, 2 per cent commercial sales tax, 1 per cent regulatory duty and 4 per cent income tax on solar PV panels/modules, along with the related components including invertors, charge controllers and batteries, LVD induction lamps, SMD LEDs with or without ballast with fittings and fixtures, fully assembled wind turbines including alternator and mast, solar torches, lanterns and related instruments, may be withdrawn.