Facts behind Tax on Solar Panels in Pakistan

There has been confusion and conflicting reports regarding the imposition of a tax on solar panels in Pakistan. While there were initial proposals to impose a tax on solar panel installations, the Power Division has clarified that there is currently no intention to implement a fixed tax on solar power. The government is considering revising the buyback rates for net metering to address concerns over capacity charges and the burden on poor consumers.

• The Central Power Purchasing Agency (CPPA) proposed levying a tax of Rs2,000 per kilowatt on residential and commercial users who have installed solar panel systems of 12 kilowatts or higher capacity. This would translate to a tax of Rs24,000 for a 12-kilowatt solar panel setup.

• The Power Division has categorically dismissed these reports, stating that neither the CPPA nor the Power Division has sent any such summary to the government proposing a fixed tax on solar power. The Power Division clarified that there is no intention to impose a fixed tax on solar power installations.

• The government is considering rationalizing the buyback rates for net metering electricity from the current Rs21 per unit to Rs11 per unit. This is due to concerns over the rapid increase in net metering installations, which is impacting the government’s ability to manage capacity charges paid to Independent Power Producers (IPPs).

• The Power Division argues that the current trend of solarization, especially among the affluent segment, is misbalancing the government’s plan to pay capacity charges from consumers. It believes that the current rate of Rs12-22 per unit for solar buyback is not practicable and is burdening the poor consumers with hefty bills.

• While the government does not want to discourage solarization, it is looking to strike a balance between promoting renewable energy and managing the financial burden on the power sector and subsidies for domestic and industrial consumers.

The Reason behind the Proposed Tax on Solar Panels in Pakistan

The main reason behind the proposed tax on solar panels in Pakistan is to address the financial burden on the government due to the rapid increase in net metering installations, particularly among affluent consumers. The government aims to strike a balance between promoting renewable energy and managing the financial burden on the power sector and subsidies for domestic and industrial consumers. By proposing a tax on solar panel installations and revising the buyback rates for net metering, the government hopes to address these concerns and ensure a more sustainable and equitable system.

1. Capacity Charges Burden
   
   The government is facing challenges in managing the capacity charges paid to Independent Power Producers (IPPs), which are incurred regardless of actual electricity purchased. The surge in net metering installations is impacting the government’s ability to manage these capacity charges. 
2. Subsidies for Domestic and Industrial Consumers
   
   The government provides subsidies to domestic and industrial consumers, resulting in a burden of Rs1.90 per unit on the national treasury. The Power Division argues that 25 to 30 million poor consumers are suffering due to this subsidy burden. 
3. Affluent Consumers Benefiting
   
   The Power Division has noted that the current trend of solarization, especially among the affluent segment, is misbalancing the government’s plan to pay capacity charges. The affluent consumers are benefiting from the high buyback rates for net metering, while the burden is being borne by poor consumers through subsidies. 
4. High Buyback Rates
   
   The current buyback rate of Rs21 per unit for excess electricity fed back into the grid through net metering is considered unsustainable by the government. It believes that the current rate allows consumers to recover their solar panel installation costs within 18 months, which is deemed too short.