ISLAMABAD: The Private Power and Infrastructure Board (PPIB) has proposed 10 percent duty on import of solar PV modules over the next 10 years and beyond aimed at promoting domestic manufacturing of PV panels, well-informed sources told Business Recorder.
The PPIB offered these comments on a summary of Ministry of Industries and Production (Mo&IP) to be presented to the ECC in its forthcoming meeting.
According to Managing Director PPIB, the Organisation reviewed the draft summary for the ECC of the Cabinet on “Solar Panel & Allied Equipment Manufacturing Policy 2024” and offered following comments:
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i- Duty imposition on solar PV modules: this should be constant at ’10% over the period of the next 10 years and beyond. Duties should be imposed for two reasons (a) in the initial period to allow new manufacturers and the industry in general to get protection while it matures to be able to compete with imports, and (b) to incentivize consumers to buy local products versus imported products.
The PPIB argued that a rising duty structure will disincentivize local manufacturers from optimizing their plants to increase their margins as the margins will automatically increase over competitive imports. Secondly the manufacturers will not take steps to become competitive in the export market as margins in the local markets will increase regardless of the effort of the optimization.
ii- Localization should be connected to import duties on solar PV modules components: To avoid the localization miscue similar to that of the auto industry, the PPIB has suggested that a clear localization plan be put in place. This plan should encompass several key measures over a specified timeframe. Firstly, for the initial two years, a 0%import duty should be applied to all components. Subsequently, in the third year of policy enactment, a 10% import duty would be introduced on aluminum frames and PV back sheets. Following this, in the fourth year, a similar 10% duty would be imposed on tempered glass. In the fifth year, connectors and junction boxes would face a 10%duty, with cells incurring the same duty in the sixth year. Lastly, after a decade of policy enforcement, a 10% duty would be levied on wafers.
PPIB maintains that this structured approach would provide manufacturers with a clear roadmap for achieving localization objectives within defined timelines, mitigating the risks associated with an indefinite localization policy.
iii- Tax free sales into solar PV module manufacturers for at least 10 years: As the solar PV modules are sold tax free, there is no possibility of adjusting taxes paid on components consumed locally. Therefore, sales into solar panel manufacturers should be exempted from GST; otherwise, it would cause a cash flow problem for local industry in its infancy.
iv- Inclusion of solar cells/wafers in the list of Raw Materials: The materials for PV module production do not cover solar cells or wafers, which goes against the policy’s goal of exempting all raw materials for manufacturing solar PV modules from duties and taxes, as stated in Policy. PPIB has recommended to include this information in Annex-I of the draft policy, titled “Raw Materials and Parts of Solar Inverters, Batteries, and DC Cables, etc.” Additionally, it’s advisable to conduct consultations with the industry to identify all necessary raw materials for manufacturing to prevent future issues. Furthermore, adjusting the title of the Annexure to include “PV Modules” would improve clarity.
v- Requirement of Bank Guarantee: The draft Policy requires investors to provide a bank guarantee equivalent to the value of tariff and tax exemptions. This guarantee would be enforced if the targets for plant capacity, localization, and exports are not met. Typically, investment attraction policies do not include punitive measures like this. Therefore, PPIB has recommended that the requirements regarding the submission and enforcement of bank guarantees be eliminated. Instead, only registered manufacturers should be eligible for the exemptions outlined in the Policy for importing raw materials and machinery.
Copyright Business Recorder, 2024
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