Pakistan’s heavy dependence on imported fuels for electricity generation has consistently driven up energy costs, placing a considerable financial strain on both households and businesses. As electricity tariffs continue to escalate, many have turned to solar energy as a more cost-effective and environmentally friendly alternative. However, a potential increase in taxes on solar panels threatens to impede this shift toward renewable energy.
Industry experts anticipate that the government may raise the General Sales Tax (GST) on solar panels to 18 percent in the upcoming fiscal year 2026-27 budget. This would follow the 10 percent GST introduced in the 2025-26 budget. Even before any formal confirmation, speculation about the tax hike has already led to a 10 to 15 percent increase in solar panel prices, with consumers facing an additional cost of roughly Rs4 to Rs5 per watt.
The Pakistan Solar Association (PSA) has voiced strong opposition to the proposed tax increase. Over the past decade, solar systems with a combined capacity of approximately 50 gigawatts have been installed nationwide. In response, the PSA has launched the #StopSunTax campaign, urging the government to refrain from imposing further taxes on solar equipment.
Waqas H. Moosa, Chairman of the PSA, expressed serious concerns about the proposal during a recent television interview. He warned that higher taxes could deter solar adoption, ultimately damaging the national economy. While the government might generate an additional Rs25 to Rs30 billion in tax revenue from the hike, Moosa cautioned that the long-term economic losses could be substantially greater.
He explained that increased taxes would raise the upfront cost of solar installations, making them unaffordable for many consumers. This could lead to delays or cancellations of solar projects by potential buyers. For instance, a solar system currently priced at Rs300,000 might rise to Rs330,000 due to the tax increase, pushing it beyond the reach of numerous families. Moosa emphasized the basic economic principle that higher prices typically reduce demand, meaning some consumers would be priced out of the market.
Moosa further highlighted that reduced solar adoption would keep more consumers reliant on conventional electricity generation, which depends heavily on imported fuels such as oil, gas, and coal. This continued dependence exacerbates pressure on Pakistan’s foreign exchange reserves. He noted that even a 10 percent drop in solar installations could prolong the country’s reliance on costly fuel imports for years.
Since solar systems generally operate for 10 to 20 years, they offer long-term savings to both consumers and the national economy. Therefore, any decline in solar uptake today could translate into significantly higher fuel import costs over the next decade. Moosa warned that while the government might gain Rs25 billion in tax revenue now, it could face over Rs125 billion in additional fuel import expenses in the future.
The PSA chairman urged policymakers to consider the broader implications of solar energy taxation and adopt a long-term perspective. He also called on the government to collaborate with international financial institutions, including the IMF, to emphasize the strategic importance of supporting renewable energy growth rather than discouraging it through increased taxes. Moosa concluded by stressing that this issue extends beyond revenue generation; it is fundamentally about energy security, foreign exchange conservation, and Pakistan’s economic sustainability.
