ISLAMABAD: A Chinese company has approached the government with a request to eliminate duties and taxes on components and manufacturing equipment used in the local production of solar PV panels to ensure incentives comparable to those offered to importers.
In a letter to SIFC Secretary Jamil Qureshi, the CEO of ReneSola Pakistan, stated that ReneSola Pakistan — a collaboration between the ACT Group and ReneSola, a Tier-1 Chinese solar panel manufacturer — is in advanced stages of setting up a solar panel assembly facility at Port Qasim in Karachi.
In May 2024, Bo Li, Chairman of ReneSola, and other company representatives visited the SIFC offices as well as the Ministry of Industries, PPIB/AEDB, and Power Division, to discuss the project. During these meetings, the company was assured that a solar policy would be implemented to support the establishment of various solar-related manufacturing facilities in Pakistan.
Over 10 years and beyond: PPIB proposes 10pc duty on solar PV modules import
Based on these assurances, the company expedited efforts to establish a solar assembly plant. The plant is planned to produce 750 MW of panels in Phase 1, an additional 750 MW in Phase 2, and 2 GW of solar cells in Phase 3, with a minimum export target of 50% of the total capacity.
Although the company anticipated that the solar policy would be included in the FY25 budget, it has not yet been announced. Despite this, the company is proceeding with the project, hoping for a rationalized customs duty and sales tax structure that will enable it to operate effectively.
The CEO highlighted an inconsistency in the sales tax and customs duty structure for solar panel manufacturing in Pakistan. Imported panels currently face 0% customs duty and 0% sales tax, while most components of a solar panel are subject to 18% sales tax, except for solar cells, which can be imported duty-free. Since imported panels are tax-exempt, local manufacturers face a disadvantage as the sales tax on components cannot be adjusted, making locally manufactured panels less competitive.
Additionally, equipment imported for the manufacturing of solar panels and cells incur 18% sales tax and 0% customs duty. As there is no sales tax on the sale of finished panels, this tax becomes a non-adjustable cost of manufacturing, further disadvantaging local manufacturers.
The company recommended the following as part of a long-term solar panel manufacturing policy for Pakistan:
Sales Tax and Duty Structure: Implement a sales tax and duty structure for panels and components as detailed below. This would encourage investment in the sector for both export and import substitution, potentially saving Pakistan $300-500 million in foreign exchange by year five and generating $300 million annually. A clear duty structure would not only incentivize the assembly of solar panels but also promote the localization of components with a defined timeframe for establishing component manufacturing facilities.
Elimination of sales taxes and duties: Remove all sales taxes and duties on the import of machinery for the assembly of solar panels and the manufacture of components. This would encourage investment, particularly since the sale of finished goods is exempt from sales tax. This change would allow assemblers and manufacturers to be competitive both domestically and in the export market.
Copyright Business Recorder, 2024