Govt To Facilitate Industries May Exempt Solar Equipment From All Taxes

investing solar

ISLAMABAD:The government is likely to exempt solar equipment from all taxes aimed at achieving the target of 10,000 MWp from solar plants and promote local industry,

In this regard, Ministry of Industries and Production (MoI&P) has drafted “Solar Panel and Allied Equipment Manufacturing Policy 2023” to be presented to the Economic Coordination Committee (ECC) of the cabinet.

According to the draft policy, the prevailing severe energy crisis, global hike in fossil fuel prices and resulting ballooning of energy import bill have triggered pressure on the county’s balance of payment (BoP).

Resultantly, government has focused on increasing the share of indigenous energy resources from existing 40% to 90.2% by 2031 as part of Indicative Generation Capacity Expansion Plan (IGCEP), which will be achieved primarily through Renewable Energy (RE) sources.

In this context the prime minister has approved to generate 10,000 MW of solar energy to overcome energy crises. The country has already witnessed a surge in the use of solar energy during the last few years.

The expected demand is expected to create huge potential market of solar modules and allied equipment as investors (local as well as foreign) are showing interest in investing in installing solar PV Panels and ancillary equipment manufacturing facilities in Pakistan.

To make local manufacturing feasible, policy intervention from the government is needed.

Existing tax and tariff structure on import of solar equipment reflects that 17% sales tax is levied on imports of parts/components of solar modules/panels whereas imports of complete modules/panels are at zero percent duties and taxes.

However, India and Turkey are applying up to 40 percent tariff differentials in order to promote their local industry.

To leverage policy formulation, the Prime Minister constituted a committee on “indigenous production of solar panel and allied equipment” on December 16, 2022.

A policy was proposed with following interventions to promote solar panels and allied equipment manufacturing in Pakistan:

(i) a consistent 10-year policy framework to enable long term investment by domestic & global companies;

(ii) exemption from duties and taxes on import of inputs (CKD & raw materials, sub-components, components, sub-assemblies) used in manufacturing of solar panels, parts and allied equipment.

Currently, complete solar power systems including PV modules, batteries, inverters, wires/cables, etc are exempted from customs duty under fifth schedule of Customs, on import;

(iii) exemption from all duties and taxes on import of plant, machinery and equipment for new and BMRE plants used for manufacturing of solar panels, parts and allied equipment.

Currently, only solar cell manufacturing equipment is exempted from customs duty under fifth schedule of Customs, on its import.

For manufacturers, solar cells and parts of PV Modules are also exempted from customs duty under fifth schedule of Customs, whereas local manufacturers of inverters, batteries and alliede quipment / parts are subject to payment of duties on the import of their inputs.

(iv) equal treatment in Sales Tax for local manufacturers and importers. Currently, solar cells and PV modules are exempted from sales tax under sixth schedule of Sales Tax Act,1990 on import and supply whereas local manufacturers are subject to payment of sales tax on import of inputs of solar panels, inverters, batteries and allied equipment/ parts).

(v) ten year Tax Holiday for existing, setting-up new plants and BMRE of Solar Panel and allied equipment manufacturing concerns

 (vi) bank financing/ loans at low interest rates for setting up local manufacturing and installation

(vii) supporting exports through adequate incentives in the shape of R&D support, DLTL, etc

(viii) preference (at least 30% share) to the locally made solar panels and allied equipment in government procurement as per SRO 827(1)/2001.

(ix) incentivising establishment of international standard and accredited laboratories, (preferably in North and South), for certifying the quality/standards of Panels and Allied equipment according to IEC standards /TUV accredited laboratories (tentative cost $ 10-15 million approx.) or upgrading a couple of existing labs (tentative cost $ 5-8 million approx). Till the time local industry may be supported through subsidizing the testing/certification of their products frominternational laboratories in other countries.

(x) constitution of Implementation and Review Committee to guide the policy.