Pakistan Gives Tax Exemption for 5 Years to Solar and Wind Equipment Manufacturing

Only about 5 to 6 percent of the power to Pakistan's national electrical grid currently comes from renewable energy


The Pakistan government has proposed a five-year exemption of taxes for manufacturing of solar and wind energy equipment in its budget bill, reported Reuters.

The tax break is expected to boost the local manufacturing of equipment needed for renewable power expansion in the country as only about 5 to 6 percent of the power to Pakistan’s national electrical grid currently comes from renewable energy, according to the country’s Alternate Energy Development Board (AEDB).

In comparison, renewable energy accounted for approximately 22 percent of India’s power capacity mix at the end of December 2018.

Pakistan suffers from power shortages and long power cuts.

“Pakistan is paying the heavy cost of an ongoing energy crisis prevailing for the last many years. In this difficult time, the promotion of renewable energy resources like wind and solar has become indispensable,” said Finance Minister Asad Umar in his budget speech, as reported by Reuters.

However, everyone does not feel that tax reduction will be enough to drive the growth of local manufacturing in the country’s renewable industry.

Naeem Siddiqui, the chairman of Ebox Systems, which assembles solar panels in Islamabad, said, “The government has already waived off taxes and duties on the import of renewable energy products, and local manufacturers cannot compete with the low-priced imported items.”

In this situation, it would be difficult for Pakistani manufacturers to compete with tax-free, low-priced imports of solar panels and other renewable energy equipment.

Currently, Pakistan imports more than 95 percent of the solar panels and other renewable energy equipment, especially from China.

“As long as the government will not impose duties on the import of finished products, the local market cannot grow”, said Aamir Hussain, chief executive officer of Tesla PV, one of the largest manufacturers of solar energy products in Pakistan to Reuters.

Muhammad Abdur Rahman, managing director of Innosol, a company that imports and installs renewable energy systems, said, “The local industry is facing pricing issues because of low-quality solar energy appliances being imported in the country that are very cheap as compared to the local market.”

Pakistan expects that the new policies will help the share of renewable energy to reach 28 to 30 percent in national electrical grid by 2030.

Mercom has reported in the past how Pakistan is slowly turning to solar power to meet its energy requirements. In June 2018, the World Bank pledged over $500 million for two renewable energy projects in Sindh, Pakistan. The projects will help in the development of an economic corridor along the Khyber Pass and are expected to accelerate economic activities between Pakistan and Afghanistan. Pakistan has been a member of the World Bank since 1950. According to the bank, it has since then, provided $33.4 billion in assistance.