Solar Industry Likely to be Exempted From All Taxes

The government is likely to exempt solar equipment from all taxes in order to meet the 10,000 Megawatt peak (MWp) target for solar plants and promote the local industry.

In this regard, the Ministry of Industries and Production (MoI&P) has prepared a “Solar Panel and Allied Equipment Manufacturing Policy 2023,” which will be presented to the cabinet’s Economic Coordination Committee (ECC), reported Business Recorder.

According to the policy, the energy crisis and trade restrictions have put pressure on the country’s balance of payment and so, the government has prioritized increasing the share of indigenous energy resources to 90.2 percent by 2031 as part of the Indicative Generation Capacity Expansion Plan (IGCEP), which will be accomplished primarily through renewable energy sources. In this context, the prime minister has authorized the generation of 10,000 MW of solar energy to address energy crises.

As investors show interest in investing in solar PV panels and equipment manufacturing facilities in Pakistan, the expected demand is likely to create a huge market for solar modules and related equipment. It is imperative that a government policy intervention is required to make local manufacturing viable.

The current tax/tariff structure on solar equipment imports reflects that a 17 percent sales tax is levied on imports of solar panels, whereas imports of complete panels are duty/tax-free. In light of this, the new policy proposes a 10-year policy framework to enable long-term investment. It further urges exemption from duties and taxes on the import of inputs, and exemption from all duties and taxes on the import of plant, machinery, and equipment for manufacturing solar panels.

The policy also recommends an unbiased sales tax regime for manufacturers and importers, a 10-year tax holiday for existing/new solar manufacturing plants, provision of bank financing/ loans at low-interest rates, supporting exports through adequate incentives, preference to the locally made solar panels and allied equipment in government procurement, incentivizing establishment of international standard and accredited laboratories, and finally, the constitution of Implementation and Review Committee to implement/guide the policy.

The proposed policy is aimed to support the local industry. Overall, its execution will assist the government in providing clean and affordable energy to citizens and help address climate change, save foreign exchange, and support export enhancement through local and foreign investments.

The proposed initiative would also energize commercial activity in pre-existing industrial sectors such as aluminum, frame, cable, and so on.