In a unanimous move, the National Assembly Standing Committee on Finance and Revenue has rejected the proposed 18% sales tax on imported solar panels, calling it an unacceptable burden on consumers and businesses at a time of rising electricity prices and economic hardship. The decision was made during a crucial budget review meeting chaired by Syed Naveed Qamar on Tuesday.
The rejection comes as the Federal Board of Revenue (FBR) seeks ways to meet revenue targets under the IMF programme while dealing with public backlash over increasing living costs and reduced access to affordable energy solutions.
Why the Solar Panel Tax Was Rejected
The FBR’s proposal to impose a full sales tax on both the import and local supply of photovoltaic (PV) cells and modules drew immediate criticism from all parliamentary factions. Members argued the measure would:
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Discourage renewable energy adoption by households and SMEs,
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Increase electricity costs by raising the upfront cost of solar installations,
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Hurt the local industry, which is already facing challenges in price competitiveness.
Committee member Mirza Ikhtiar emphasized, “Tax should not be slapped over solar panels if you talk about renewable energy.” He added that imported solar panels are often more affordable and reliable than locally manufactured alternatives.
FBR Chairman Amjad Zubair Tiwana responded that the current sales tax exemption disproportionately benefits commercial importers, leading to input tax distortions and unfair competition against local manufacturers. He acknowledged that the proposed tax would cover a revenue shortfall of Rs40 billion, half of which comes from the loss of tax revenue, and half from a subsidy burden.
Nonetheless, the committee stood united against the proposal, arguing it would be counterproductive to Pakistan’s energy goals.
Digital Presence Proceeds Tax Act: New Tax on Foreign E-Commerce
While solar tax proposals faced opposition, the committee approved the Digital Presence Proceeds Tax Act, 2025, a key fiscal innovation targeting the digital economy.
The new law introduces a 5% tax on proceeds from digitally ordered goods supplied by foreign e-commerce vendors to Pakistan-based customers. Highlights include:
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Foreign companies like Temu and others advertising through platforms such as Google will now fall under Pakistan’s tax net.
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Payment intermediaries (banks, fintechs) will be responsible for collecting and remitting this tax.
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The Act excludes services and only applies to physical goods ordered online and delivered in Pakistan.
The move was inspired by Pakistan’s need to assert digital taxing rights and capture revenue from cross-border digital sales, especially as firms like Temu reportedly earned Rs4 billion from the Pakistani market without paying income tax.
Vehicle Tax Adjustments and IMF-Driven Commitments
In response to IMF conditions, the FBR also proposed removing lower-than-standard sales tax rates on motor vehicles. This includes:
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Increasing tax rates from 5% to 10%, and from 10% to 18%.
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The changes do not affect electric vehicles, which remain incentivized under green transport policy.
The FBR admitted these changes will likely raise car prices, but emphasized their obligation to align Pakistan’s tax policy with IMF-backed reforms.
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Over-Invoicing in Solar Imports and Customs Reform Denied
A major concern raised was the Rs65 billion in over-invoicing in solar panel imports, which FBR classified as money laundering—a practice where inflated invoices are used to illegally move foreign currency out of Pakistan.
In a separate proposal, the FBR requested the creation of a Customs Command Fund (CCF)—a financial pool for customs staff—but the committee rejected it, citing lack of transparency and potential misuse.
Conclusion: A Win for Renewable Energy and Digital Tax Progress
The rejection of the solar tax proposal sends a clear signal: the government is not prepared to undermine energy affordability and climate goals for short-term revenue. Instead, the approval of digital taxation on foreign vendors marks a significant policy shift toward a more equitable, tech-savvy tax base.
With IMF deadlines looming, the coming weeks will test how Pakistan balances fiscal obligations with public interest, especially in sectors as critical as energy, trade, and e-commerce.
