THE imposition of 17pc sales tax on solar energy equipment, as proposed in the Finance Supplementary Bill, 2021, runs counter to the prime minister’s vision of boosting the share of renewables in the overall energy mix to protect the environment and cut reliance on expensive imported fossil fuels. The increase in the price of solar energy, owing to the withdrawal of the sales tax exemption, will likely hit the adoption of solar energy in the country, especially by middle-class homeowners, slowing down Pakistan’s progress towards clean energy as promised in the National Renewable Energy Policy of 2019. The policy aims to acquire a 30pc share of renewables in the energy mix by 2030. Solar is the largest segment of the renewable energy industry in Pakistan and a significant uptick was seen in its adoption by residential, industrial and other consumers owing to tax incentives in recent years. The bill also proposes to tax wind power which is the other major segment of the renewable energy industry.

The so-called mini budget introduced in parliament for the resumption of the stalled $6bn IMF funding programme not only taxes solar equipment but also high-efficiency irrigation equipment, effluent treatment plants, and so on. But for what exactly? Just for a few billions in revenue and at the expense of the environment? The new taxation illustrates how the government’s tax policies are completely divorced from its environment policy objectives. Many fear — and rightly so — that the increased price of solar energy will encourage illicit trade and/or the import of low-quality cheaper equipment to meet the demand from middle-class consumers. Indeed, the collection in tax revenues is imperative for a sustainable economy and growth. But that need should not blindside our policymakers. There are other avenues, both undertaxed and untaxed, from which the government can generate a lot more than what it seeks to rake in from taxing green equipment. The finance ministry should review its tax proposal and take out such regressive taxation from the bill.

Published in Dawn, January 7th, 2022