The National Assembly Finance Committee on Tuesday unanimously rejected an 18% sales tax on solar panels proposed in the federal budget for FY2025-26, with lawmakers stressing solar energy is not a luxury.
The tax was part of a series of measures proposed by Finance Minister Muhammad Aurangzeb and the Federal Board of Revenue (FBR) to meet fiscal targets agreed upon with the International Monetary Fund (IMF). It was estimated to generate Rs. 20 billion in revenue.
PPP MNA Syed Naveed Qamar, who chaired the committee, said the Lower House would not permit any taxation that discouraged clean energy. The decision reflects growing political dissatisfaction with stringent fiscal consolidation measures under the ongoing $7 billion Extended Fund Facility with the IMF. It also follows a veiled warning by the finance minister in a post-budget press conference. Addressing media, he had claimed that if Parliament did not support his ministry’s revenue generation measures, it would have no choice but to impose a slew of new taxes.
During the meeting, Aurangzeb sought to defend the tax by claiming the government had little space for sector-specific relief measures. “All subsidies will be phased out,” he maintained. Similarly, FBR Chairman Rashid Langrial defended tax by claiming roughly 32,000MW of solar panels were imported over the past five years, with 13,000MW of them still unutilized. He claimed there were several instances of over-invoicing and the move would stem the practice. He also claimed this would protect domestic manufacturers, with lawmakers noting there was no local production presently.
However, the finance ministry found no support for its arguments, with lawmakers of both ruling and opposition benches rejecting the tax.
The finance ministry’s proposed tax measures took another hit this week, as Prime Minister Shehbaz Sharif directed it to revise a controversial proposal allowing it to arrest tax fraud suspects. The revised policy restricts detentions to high-value cases of over Rs. 50 million and only permits arrests if the suspects ignore three official notices or risk destroying evidence.
During the meeting, the FBR presented its plans to boost enforcement from unregistered businesses. “We’ll start by blocking their bank accounts. If they still don’t register, we’ll freeze accounts and seal premises,” said Langrial. He further sought a police role in enforcement of illicit cigarette sales, but lawmakers rejected this as well, arguing it would open a new avenue for bribery and corruption.
Separately, the Senate finance committee criticized a proposed increase in GST on small vehicles from 12% to 18%. Senators said this was an “unfair” tax and suggested boosting it by a smaller amount to either 14% or 15%.