Solar tax increase may cost Pakistan more than it warns

Pakistan’s reliance on imported fuel for electricity generation has long contributed to high energy costs, placing a significant burden on consumers. As electricity prices continue to rise, many households and businesses have turned to solar energy as a more affordable and sustainable alternative. However, concerns are growing that a proposed increase in taxes on solar panels could slow this transition to solar energy.

Solar sector braces for possible tax hike

Industry experts believe that the government may impose an 18 percent General Sales Tax (GST) on solar panels in the upcoming FY 2026-27 budget. This follows the 10 percent GST already introduced on solar panels in the FY 2025-26 budget.

Even before any official announcement, the solar market has witnessed price increases amid speculation surrounding the proposed tax hike. Solar panel prices have reportedly risen by an average of 10 to 15 percent, with consumers facing an increase of approximately Rs4 to Rs5 per watt.

Solar Association opposes proposed GST increase

According to the Pakistan Solar Association (PSA), solar systems with a combined capacity of around 50 gigawatts have been installed across Pakistan over the past decade. In response to the proposed tax increase, the association has launched a nationwide campaign, #StopSunTax, urging the government to avoid imposing additional taxes on solar energy equipment.

Speaking on Hum News’ morning show Subha Se Aagay, Chairman of the Pakistan Solar Association, Waqas H. Moosa, expressed serious concerns about the government’s proposal, warning that it could discourage solar adoption and ultimately harm the national economy.

Higher prices could slow solar adoption

According to Moosa, while the government may generate an additional Rs25 to Rs30 billion in tax revenue through higher taxes on solar panels, the long-term economic losses could be far greater.

“The government may collect Rs25 to Rs30 billion today, but the country could lose several times that amount over the coming years,” he said.

Moosa explained that higher taxes would increase the upfront cost of solar installations, making them less affordable for many households and businesses. As a result, a significant number of potential consumers may delay or completely abandon plans to switch to solar energy.

Providing an example, he noted that a solar system currently costing Rs300,000 could increase to Rs330,000 due to the tax hike, pushing it beyond the financial reach of many families.

“It is a basic principle of economics that when prices rise, demand falls. While many people may still install solar systems, a percentage of consumers will be priced out of the market,” he said.

Reduced solar adoption could increase fuel import

Moosa argued that every consumer who decides against installing solar remains dependent on conventionally generated electricity, much of which relies on imported fuels such as oil, gas, and coal. This dependence, he said, continues to place pressure on Pakistan’s foreign exchange reserves.

“If even 10 percent fewer people install solar because of higher prices, they will remain dependent on the traditional power system. That means Pakistan will continue importing expensive fuels for years to come,” he explained.

He emphasized that solar systems typically operate for 10 to 20 years, generating long-term savings for both consumers and the national economy. Consequently, any reduction in solar adoption today could result in substantially higher fuel import costs over the next decade.

“The loss is not for one year; it continues for 10 years or more. To gain Rs25 billion today, we may end up spending over Rs125 billion in imported fuel costs in the future,” Moosa warned.

PSA urges government to reconsider tax policy

The PSA chairman urged policymakers to adopt a long-term approach when evaluating solar energy taxation. He also called on the government to engage with international financial institutions, including the IMF, to highlight the strategic importance of promoting renewable energy rather than discouraging its adoption through higher taxes.

“This is not merely a revenue issue. It is a question of energy security, foreign exchange savings, and Pakistan’s long-term economic future,” he concluded.