Like a pendulum, the news of a 32.5% tax on the import of solar panels in Pakistan oscillates between a reality one day and a rumor the very next. There are various references to this tax in the news but the facts and figures are inconsistent and sometimes even completely opposing, which makes this subject very much worth discussing.

While the more fundamental debate on whether to tax solar equipment in the first place continues, importers, local manufacturers and not-for-profits – all working within the growing ambit of the alternative energy industry – follow the relentless tax pendulum, as if they were following a tennis match. The only difference in the world of solar panels is that there are more than two sides to the story and the referee is a mythical figure, often referred to in news items as ‘the authority’.

A brief chronology of varying reports on the aforementioned tax will demonstrate how something simple can be muddled in a skirmish of competing interests.

On July 24, 2014, DAWN published a blog, ‘Taxes on solar panels: say bye to cheap electricity’. The blog sourced the Finance Act 2014 as the basis of the 32.5% tax on the import of solar panels, whereas the online copy of the Finance Act 2014 made no reference to any such tax. This was the first of many discrepancies on this subject.

On July 27, 2014, Business Recorder published a news item, ‘No new duties imposed on solar panels: FBR’. In this news item, the Federal Board of Revenue ‘strongly dispelled the notion that new duties/ taxes have been imposed on the import of solar panels in the budget 2014/2015’.
Most recently, on November 14, 2014, the Express Tribune sourced a news report from Reuters, ‘Tax on solar imports threatens clean energy push: experts’. Here again, experts claim that a 32.5% tax on solar panels will threaten demand for solar products and undermine efforts to bring solar electrification to off-grid areas across Pakistan.

The discrepancy above leads to a simple question: if what the Federal Board of Revenue says is true – if there really is no new tax on solar equipment – then why all the hue and cry?

Firstly, there is no ‘new tax’ on solar panels. However, there is certainly a tax on any good that can be manufactured locally, a policy that can be found in the Fifth Schedule of Customs Act, 1969 and Sixth Schedule of Sales Tax Act, 1990. Considering there are two companies in Pakistan that manufacture solar panels – Akhter Solar and Tesla Solar – how does their existence bode for importers of solar panels? Well for some and not so well for others. If the importer of a solar panel wishes to benefit from tax exemption, the importer must be able to prove that the imported solar panel is either above the quality or somehow beyond the capacity of the panel produced by the local manufacturer. If the importer fails to do so, the importer will be liable to pay tax.

Another reason why this ‘new tax’ is making such a ruckus has something directly to do with the unethical business practices of certain importers who view the tax exemption on solar equipment as an opportunity to diversify business. In the recent past, goods, imported under the guise of solar equipment, were actually used to assemble Uninterrupted Power Supply (UPS) units. While it is difficult to corroborate the above, UPS units, with imported ancillaries, are available in the local market and thus contribute to the reasoning above. Also, importers, who are not currently negotiating a way forward on impounded containers with the ‘authorities’, claim that the ‘new tax’ is a flexible tool to give law-breaking importers a lesson.
Lastly, and perhaps most importantly, one must understand that the Engineering Development Board (EDB) that has the apparent interest of local solar panel manufacturing at heart, will do what it can to channel and protect foreign investment in this area and is thus naturally inclined to support a tax on the import of solar panels. Unfortunately, the lack of progress on local solar panel manufacturing suggests that the EDB (and the Board of Investment) haven’t yet done enough to assure foreign investors of a safe return. It is thus becoming increasingly clear that taxing solar panels alone without seriously clamping down on smuggled goods will pay no dividends.

If a tax on the import of solar panels coincided with heightened local manufacturing and a serious effort to curtail the spread of the black market, the tax would have been less of an issue. Clearly, somewhere along the line, the government’s master plan failed (if they ever had one) and in the current scenario the black market seems like the biggest culprit – not the ‘new tax’. The rise and spread of smuggled solar energy solutions in Khyber Pakhtunkhwa best illustrate this phenomenon.

Dilbar Shah, a resident of a small village called Battgram, around eight hours north of Islamabad, recently bought a solar energy solution for USD 30. This solution lights three energy saver bulbs, a fan and can simultaneously charge his cellular phone. In a recent conversation, Dilbar Shah said that nearly eighty percent of the households in his village are using similar solar energy solutions. Now one doesn’t need to study economics to realize that both local manufacturing and the import of solar panels are threatened by the unparalleled and unbelievably low price point at which smuggled goods are bought and sold in the market today.

Despite the many obstacles to local manufacturing though, there have been glimmers of hope. In early January 2013, a German Engineering Company represented by Shahzada Khurram, the only Pakistani Director of the company, shared intent to invest 100 million euros in a solar manufacturing plant in Pakistan. Shahzada’s company promised project completion by the end of 2013 and it seemed like they had already accumulated a series of orders from various public and private sector customers in advance of project completion. Why Shahzada or his company haven’t made the news ever since is yet another mystery that demands investigation. In a country where nearly 32% of the population has no direct access to electricity and is in dire need of solar energy solutions, one can only hope Shahzada’s story is in no way connected to the undeniable and far-reaching ills of a thriving black market.

The writer is a communications consultant based in Lahore