Demystifying the tax on solar panels

On July 24, 2014, a blog published in Dawn reported a 32.5% tax on the import of all solar equipment and machinery in Pakistan. It said, “…the decision to tax solar panels is beyond comprehension and a work of sheer stupidity. We were all in for a massive surprise when the federal government decided to unilaterally impose hefty taxes on the import of solar equipment and machinery in the recently enacted Finance Act 2014.”
Many who read the blog were outraged by the news. Indeed, severely taxing renewable energy products that could potentially reduce the burden on the grid, generate environmentally friendly energy and illuminate communities that have historically never had electricity before, made little sense.
The counter-argument was that the tax levied would encourage investment in the non-existent domestic solar equipment industry. This also raised a series of questions. Paramount amongst these concerns was the fact that Pakistan only has one solar panel manufacturing plant in Wah Cantt which is not even ISO certified. Furthermore, the plant is not large enough to meet the country’s growing demand and not capable of producing high-grade panels necessary for tube wells or any similar energy demanding machinery.
Intrigued about the legitimacy of the claim in Dawn, I thoroughly reviewed the Finance Act 2014 and learnt that there was no mention of a 32.5% tax on solar panels. Subsequently, I read all the latest Statutory Residual Orders on the Federal Board of Revenue (FBR) website and still wasn’t able to find what I was looking for. The number could not have been concocted out of thin air. Finally, a source in the energy sector, discovered an isolated statement from FBR dispelling all notions of a tax on solar panels.
The news item in Business Recorder on July 27, 2014 stated, ‘no change of duty and tax structure was made on renewable energy equipment in the newly announced Finance Act, 2014. However, acceding to the demand of the indigenous engineering industry, that is making specific parts of the solar panel, tax exemption has been withdrawn on those specific parts’. The same news item further clarified that if an importer verified the import (through the Engineering Development Board) as a unique product not manufactured or available in Pakistan, the importer would not have to pay custom tax.
In terms of results, the sensational, and in some parts entirely inaccurate blog in DAWN paid dividends: the FBR issued a clarification within three days of the blog and the seventy odd consignments that were held hostage at the port, suffering for weeks from bureaucratic inefficiencies, were finally free to walk the land as equals. In hindsight, however, one expects better research from print media; a medium that often takes pride in its integrity compared to the brand of journalism found and scorned in its electronic counterpart.
Also, while the government’s effort to help develop a domestic renewable energy industry is admirable, it certainly has to go beyond taxing imports with local substitutes. There is talk about developing an 1800MW capacity solar power park in Bahawalpur with Chinese companies TBEA and Zonergy. Some of the latest reports claim that the solar energy park will be up and running by December this year but energy experts in Pakistan are skeptical about the compatibility between new renewable energy projects and our ailing national grid.
While we hatch ambitious plans to introduce another ‘23,000MW to the grid in the next eight years’ in neighboring India, not-for-profits like the Barefoot College and Tata’s Solar Power program have already introduced countless off-grid solutions in thousands of remote villages. Unlike Pakistan, that will heavily rely on all things Chinese, India is also manufacturing and selling its very own solar panels.
But I must make myself clear: collaborating with a technologically superior partner like China is not the problem here. Not transferring the technology to replicate it is. Chinese companies can certainly build Pakistan’s largest solar power project and then we can run it. But would it not benefit us more to learn how to build it first and then use our own resources to make more?
If China really is our closest ally ever, why will it not teach us how to fish? Could it be that we are averse to learning in the very first place?

 The writer is a communications consultant based in Lahore.

The writer is a communications consultant based in Lahore

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