GST on Solar Panels: Impact on Pakistan’s Renewable Energy Transition

Energy sector analysts suggest that the implementation of the General Sales Tax (GST) on imported solar panels will not impede Pakistan’s rapid shift towards renewable energy sources, irrespective of the eventual tax rate determined by the government.

Moreover, experts contend that the government’s expectation that GST will bolster the local industry may be counterproductive. They argue that the domestic industry is still in its nascent stages and lacks the capacity to fulfill existing market demands.

These observations were shared by specialists in clean energy, industrialists, environmental advocates, and solar energy traders during a webinar entitled “Taxing the Sun: Will Solar Still Shine in Pakistan?”, which was a joint effort by Energy Update and the Pakistan Solar Association (PSA).

The attendees at the webinar deliberated on the government’s recent budget proposal concerning the imposition of GST on solar panels.

The initial federal budget included a proposal to levy an 18% GST on imported solar panels, which triggered considerable discussion. Following consultations, the government opted to reduce the rate to 10%.

Industry Perspectives

Waqas Moosa, Chairman of the PSA, emphasized the critical importance of the 2020-2030 decade for the global transition to clean energy.

He predicted that Pakistani consumers would continue to adopt solar energy for their residential and commercial needs, regardless of the increased expenses resulting from the GST.

However, Moosa cautioned that Pakistan’s local industry is not yet adequately prepared to meet the rising demand for advanced solar panels in sufficient quantities.

Reliance on Local Production

“Therefore, over-reliance on local production at this stage carries the risk of hindering progress.”

Moosa voiced strong disapproval of the proposed tax on imported solar panels, describing it as a significant setback for Pakistan’s climate action efforts.

He stated, “Regardless of whether the tax is implemented, domestic consumers will persist in switching to solar energy because of ongoing power shortages and unaffordable electricity prices from the national grid.”

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

He asserted that a large proportion of electricity consumers in Pakistan will continue to move away from grid-supplied power, irrespective of tax implications.

Ali suggested that Pakistan requires a minimum of 18-24 months to cultivate a robust local industry capable of producing clean energy equipment on a large scale.

He warned that imposing a tax prematurely could discourage both local and foreign investors.

Furthermore, he highlighted that elevated electricity tariffs for industrial consumers could deter investment in solar panel manufacturing plants.

Nevertheless, Ali expressed optimism that potential Chinese investors would soon form joint ventures with Pakistani industrialists to establish such facilities.

The CEO of Inverex explained that the establishment of local solar panel manufacturing plants could stimulate the growth of five supporting vendor industries, significantly strengthening the clean energy supply chain in Pakistan.

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

Dr. Khalid Waleed, a Research Associate at the Sustainable Development Policy Institute (SDPI), expressed his belief that the increase in rooftop solar installations in urban areas presents an opportunity for Pakistan to obtain carbon credits in the international climate finance market.

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

Barry also emphasized the substantial untapped potential for solar energy adoption among rural households and agricultural communities across the nation that are not connected to the grid.