The cost of setting up solar power projects in Pakistan has spiked 30% to Rs70 per unit (watt) after the government withdrew tax exemptions on import of solar panels and related equipment through the mini-budget in mid-January 2022.

This is one-time cost of solar projects having estimated lifespan of about 25 years.

“The cost shot up following the withdrawal of exemption from 17% sales tax and 3% additional sales tax on import of solar power equipment,” Pakistan Solar Association (PSA) Chairman M Saleem Memon noted at a press conference at Karachi Press Club on Tuesday.

“Pakistan imported solar equipment for 2,380 megawatts during 2021,” revealed PSA Vice Chairman Naveed Karar.

The end of tax exemptions may appear as a major impediment in the way of implementing the government’s vision of “Clean and Green Pakistan”.

Earlier, the government had set the target of increasing the share of renewable energy (solar and wind power) in total electricity generation to 30% (equivalent to 24,000MW) by 2030.

“Almost 90% of solar power projects are financed by the World Bank and USAID (United States Agency for International Development),” an office-bearer of the association, M Zakir Ali, said, adding that the surge in cost may make it impossible to meet the target of increasing the share of renewable energy.

Among other projects, the World Bank has provided $100 million for the Sindh Solar Energy Project (SSEP), which is supporting utility-scale solar power, distributed solar on and around public buildings, and provision of solar home systems to households with low or no grid access, according to the bank.

Since 2010, USAID has partnered with the government to add more than 3,900MW to the national grid.

These investments have benefitted more than 47 million Pakistanis, reducing costs for energy distribution companies by $429 million and leveraging more than $2.8 billion in private investment, according to the Private Financing Advisory Network (PFAN).

Read People urged to go solar

The government is demanding sales tax and additional sales tax on equipment imports by opening letters of credit (import documents) three months ago.

“Some 1,200-1,300 containers of solar panels and related equipment have arrived at Karachi ports (mostly from China),” Ali noted.

The government should clear the equipment without charging taxes since orders were placed a couple of months before the new tax measures were implemented, Karar emphasised.

“The government should restore tax exemptions on import of solar equipment in the best national interest … or it should give importers at least six months to get ready for tax payments,” Ali maintained.

Finance Minister Shaukat Tarin had assured on the floor of National Assembly on January 13, 2022 that solar power equipment imports would remain exempted from taxes, Memon recalled.

However, when importers filed documents to get their equipment cleared from ports on January 17, they were told to pay new taxes, he added.

Foreign buyers are increasing pressure on Pakistani exporters to adopt policies to reduce carbon emissions and invest in renewable energy, it has been learnt.

The Global Climate Risk Index ranked Pakistan as the fifth most climate vulnerable country, with 152 extreme weather episodes over the past decade.

Read more GST for de-solarisation

PSA office-bearers highlighted that the cost of import of a 540-watt solar panel has increased by Rs10,000 to Rs12,000 after the withdrawal of tax exemptions.

Published in The Express Tribune, January 26th, 2022.

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