Govt Eases Tax on Solar Panels for Clean Energy

Govt Eases Tax on Solar Panels for Clean Energy from 18% to 10%, making clean energy more accessible and affordable for homes and businesses.

ISLAMABAD – In a significant move aimed at supporting Pakistan’s transition toward renewable energy, the federal government has officially reduced the sales tax on solar panels from 18 percent to 10 percent. The announcement was made by Deputy Prime Minister Ishaq Dar during a budget session in the National Assembly. The revised tax rate, down from the initially proposed 18%, comes as a direct result of continued feedback from stakeholders and recommendations from the Standing Committee on Finance. This policy shift is part of broader budget revisions currently under discussion among coalition partners and reflects growing governmental responsiveness to economic and environmental concerns. The move is expected to lower the cost burden on consumers, increase accessibility to solar power systems, and support the country’s clean energy goals amid rising fuel import bills and frequent energy shortfalls. Within the first 100 words of the announcement, the sales tax on solar panels remains the key focus of the federal government’s fiscal adjustment strategy for the renewable energy sector.

Standing Committee Recommendations Trigger Reduction in Sales Tax on Solar Panels

Earlier, the government had introduced an 18 percent general sales tax (GST) on solar panels in the proposed 2025-26 federal budget. However, this proposal faced strong opposition from the renewable energy sector, environmental experts, and members of the Standing Committee on Finance. During committee deliberations, it was argued that a high tax would increase the upfront cost of solar systems, discouraging adoption and impeding national clean energy goals outlined in the Alternative & Renewable Energy (ARE) Policy 2019. Following stakeholder consultation and committee review, the recommendation to reduce the GST to 10 percent was adopted by the Ministry of Finance. Deputy Prime Minister Ishaq Dar confirmed in his statement that ongoing consultations with coalition partners also contributed to the decision. He clarified that while the federal government has adjusted tax policies for solar energy, taxes on digital services remain a provincial subject under constitutional jurisdiction.

Impact of Reduced Sales Tax on Solar Panels in Pakistan’s Market

The solar energy market in Pakistan has grown steadily over the last five years, fueled by rising electricity tariffs, frequent power outages, and government incentives. According to data from the Alternative Energy Development Board (AEDB), solar power capacity in Pakistan surpassed 1,200 megawatts by the end of 2024. The reduction in sales tax is expected to further accelerate the adoption of solar panels by lowering the cost of solar kits for households and commercial users. Industry experts believe the 8 percent tax reduction could lower the price of an average residential 5kW solar system by Rs70,000 to Rs90,000, depending on panel quality and inverter specifications. This price relief could drive growth in urban and semi-urban areas, where grid reliability remains a pressing issue. Additionally, reduced import duties and lower taxes on related equipment like batteries and inverters may also follow suit as part of a comprehensive solar policy adjustment expected later this fiscal year.

Digital Services and Provincial Authority on Taxation

While addressing concerns over tax imposition on solar panels, Deputy Prime Minister Ishaq Dar also clarified the federal stance on digital service taxation. Under Pakistan’s Constitution, the taxation of digital services—such as streaming platforms, online marketplaces, and cloud services—falls under provincial jurisdiction. Any new tax proposals related to digital platforms must go through provincial assemblies, and as such, were not part of the federal budget adjustments discussed in the current session. This clarification comes in the wake of growing debate around the taxation of international digital companies operating in Pakistan. Several provinces, including Punjab and Sindh, have already implemented service taxes on digital platforms, typically in the range of 5% to 16%, based on service categories.

Federal Government Increases Higher Education Budget in Sindh

In a related fiscal update, the federal government has also announced a significant increase in budgetary support for higher education institutions in Sindh. The allocation has been raised from Rs2.6 billion to Rs4.6 billion, reflecting a 76.9% increase aimed at strengthening the academic and infrastructural capacity of universities in the province. This announcement was made in the same National Assembly session and is aligned with the government’s broader education reform agenda under the Public Sector Development Programme (PSDP) 2025-26. The increased funding will reportedly cover improvements in laboratory facilities, faculty development, digitalization of academic resources, and scholarship programs for underprivileged students. It is expected to directly benefit public universities in Karachi, Hyderabad, Jamshoro, and other cities in Sindh.

Policy Alignment with Global Clean Energy Goals

The decision to reduce the sales tax on solar panels is consistent with Pakistan’s commitment to achieving 60 percent clean energy by 2030, as outlined in the Nationally Determined Contributions (NDCs) under the Paris Agreement. The Alternative & Renewable Energy Policy 2019 also sets a target of 20-25 percent renewable energy share in the national grid by 2025. According to the National Electric Power Regulatory Authority (NEPRA), Pakistan’s current renewable energy mix stands at approximately 6.6%, which includes hydro, wind, and solar energy sources. Experts from the Pakistan Solar Association (PSA) welcomed the tax reduction but called for a consistent, long-term policy framework to avoid disruptions in market growth. They emphasized the need for continued government support in the form of simplified net metering regulations, easier financing schemes for solar installations, and a predictable import policy for solar components.

Global and Regional Solar Incentive Models|Govt Eases Tax on Solar Panels for Clean Energy

Globally, many countries have offered tax incentives and rebates to promote solar adoption. For example, India provides a 40% subsidy on small rooftop installations and tax exemptions on solar imports. In contrast, Pakistan has fluctuated in its policy stance over the years, affecting investor confidence and market planning. The latest move to reduce sales tax aligns Pakistan more closely with regional competitors and signals greater policy maturity. Pakistan currently imports the majority of its solar panels from China and Southeast Asia. Import data from the Federal Board of Revenue (FBR) shows a steady increase in solar equipment imports, with over $550 million worth of solar products brought into the country in 2024 alone. The recent tax revision could lead to further import growth and expand domestic distribution networks.

Practical Concerns and Enforcement of New Sales Tax on Solar Panels

Despite this positive development, challenges remain in ensuring that the tax benefits reach end users. Several solar vendors and installers have raised concerns about inconsistent implementation at the customs and taxation level. Delays in clearance, arbitrary valuation by customs officials, and limited awareness among provincial tax offices may reduce the effectiveness of the 10% tax rate on solar panels. Industry groups have urged the Federal Board of Revenue to issue detailed implementation guidelines and conduct awareness campaigns to ensure compliance. In addition, stakeholders advocate for a clear differentiation between Tier-1 and Tier-2 solar panel quality and a certification mechanism to prevent substandard imports from flooding the market due to reduced pricing.

Strategic Recommendations for Clean Energy Expansion

The reduction of the sales tax on solar panels is a step in the right direction for Pakistan’s clean energy ambitions. However, experts agree that further reforms are needed to build a resilient and investor-friendly renewable energy ecosystem. Some of the key policy recommendations include: Introducing zero-rated GST on renewable energy equipment. Offering low-interest loans through public and private banks for solar installations. Simplifying net metering application and approval procedures. Establishing a national database of certified solar installers and panel brands. Creating federal-provincial coordination bodies to align renewable energy incentives and taxation frameworks. The government is also exploring partnerships with international agencies such as the World Bank and the Asian Development Bank (ADB) for technical assistance and funding support for off-grid solar projects in rural areas.

Conclusion: Govt Eases Tax on Solar Panels for Clean Energy

The federal government’s decision to reduce the sales tax on solar panels from 18% to 10% reflects a broader policy shift toward sustainable energy and economic relief for consumers. Alongside increased education funding and clarification on digital service taxation, this move demonstrates responsiveness to public and stakeholder feedback. As Pakistan continues its transition toward cleaner energy, consistent and transparent fiscal policies will remain crucial to meeting both economic and environmental goals.