Zero import duty inhibits investment in domestic solar product manufacturing

The government has eliminated import duty on solar products to encourage the use of solar energy. However, this approach has had unexpected consequences, inhibiting investment in domestic manufacturing.

Talking to WealthPK, Mubashir Hassan, Managing Director of Alpha Renewables Private Limited, said the zero-import duty policy was intended to make solar energy more affordable and accessible to the public. While the intended purpose was served, an uneven playing field was created for the domestic manufacturers.

He pointed out that the local producers have found it difficult to compete, as the foreign solar items had flooded the market. The lack of import duty has caused a drastic drop in the prices of imported goods, making it harder for domestic manufacturers to sell them.
He lamented that Pakistan’s solar industry faced a significant challenge, as it prepared to compete directly with China – the global leader in solar panel manufacturing.

China’s dominance in the industry is unparalleled, with a market share of over 70% and vast economies of scale that enable it to produce solar panels at a significantly lower cost.

The decline in investment in domestic manufacturing has far-reaching consequences. The country would become increasingly reliant on imported products, which can be subject to fluctuations in global prices and supply chains.

Speaking to WealthPK, Sohail Lashari, Chief Executive Officer of Sozo Solar Power, said the government’s policy was to promote green energy, but it inadvertently created a barrier to the growth of the domestic industry. 

To address this issue, the government needs to revisit its policy and consider imposing a reasonable import duty on solar products, leveling the playing field for domestic manufacturers and encouraging investment in domestic production.

He opined that the government should consider reducing or eliminating duties on raw materials and components used in the manufacturing of PV modules, solar inverters, and lithium batteries, which would help reduce the cost of production for local manufacturers, making them more competitive with the grid electricity.

The Sozo Solar Power CEO said the government should introduce incentives such as tax credits, subsidies, or low-interest loans to encourage investment in the solar sector and help local manufacturers compete with foreign companies.

While the PV modules are exempt from customs duty, local manufacturers still face tariffs on raw materials and components. Import duties range from 0-5 percent on raw materials for PV module production, 0-4 percent on solar inverter parts, and 0-10 percent on lithium battery components.

Despite the removal of duties on inverter and battery parts, the cost of production remains higher than the grid electricity, making them economically unviable.

Imposing a reasonable duty on solar imports would also generate revenue for the government, which could be used to support the solar industry development. A balanced approach is needed that promotes the adoption of solar energy while also encouraging domestic manufacturing.

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