The implementation of the Finance Supplementary Act, 2022, brought about significant changes in the taxation of the renewable energy sector, particularly the solar energy sector, in Pakistan. Despite the confusion surrounding these changes due to the lack of proper legislation, it is essential to understand the implications of these changes.
In this article, we will discuss the changes in income tax, sales tax, and custom duty imposed on the solar energy sector in Pakistan. We will also shed light on the exemptions available and the impact of these changes on the solar energy sector.
Changes in Income Tax
The collection of advanced tax has been reduced at the import stage from 5.5% to 2%. However, other exemptions that were previously available to the energy/renewable energy sector are still valid, and no change has been initiated in that respect. It is crucial to note that import is taxed under the 14th schedule.
Changes in Sales Tax
The changes proposed in sales tax exempt photovoltaic cells, but the ancillary products are not exempt. It means that products such as batteries, inverters, etc., which make up a complete unit for solar panels, are still subject to sales tax.
Custom Duty Exemptions
Custom duty payable on the import of special raw materials used for manufacturing LED lights and LED bulbs is proposed to be exempt for incentivizing the respective sectors. However, there is no such exemption proposed for the solar energy sector.
Impact on the Solar Energy Sector
The changes in taxation for the solar energy sector have both positive and negative impacts. The reduction of advanced tax from 5.5% to 2% at the import stage will reduce the overall cost of importing solar equipment. However, the sales tax on ancillary products such as batteries and inverters may increase the cost of installing solar panels.
The exemption of photovoltaic cells from sales tax is a positive development, but the non-exemption of ancillary products may create confusion among suppliers and importers. It may also discourage people from adopting solar energy as a renewable source of energy.
Conclusion
The implementation of the Finance Supplementary Act, 2022, has brought about significant changes in the taxation of the solar energy sector in Pakistan. It is essential to understand these changes and their implications, particularly for those who are considering adopting solar energy as a renewable source of energy.
The reduction in advanced tax at the import stage and the exemption of photovoltaic cells from sales tax are positive developments. However, the sales tax on ancillary products and the absence of any custom duty exemptions for the solar energy sector may create confusion and discourage the adoption of solar energy.
Therefore, it is essential to address these issues and provide clarity through proper legislation to facilitate the growth of the solar energy sector in Pakistan.
