Tax on Solar Panels in Budget 2025–26: What It Means for You
When Finance Minister Muhammad Aurangzeb unveiled Pakistan’s federal budget for FY 2025–26 on June 10, 2025, one of the most discussed measures was the introduction of an 18% general sales tax on imported solar panels. As Pakistan experiences a surge in solar adoption, this move—aimed at nurturing the local solar manufacturing industry—has left many weighing its long-term impacts. Let’s dive into what it means and who it affects.
What’s the Change?
The key policy change is straightforward:
-
An 18% GST will be applied on all imported solar panels starting next fiscal year.
Previously, many imported panels were exempt from or received lower tax rates under earlier budgets. Now, with this budget, the government is proposing to remove those tax breaks.
Government’s Rationale
Finance Minister Aurangzeb defended the move in Parliament, citing two main goals:
-
Level the playing field between imported and locally produced panels, giving domestic solar manufacturers a fair chance to compete.
-
Correct distortions in the sales tax system to make taxation fairer across various economic sectors.
This dovetails with the budget’s broader strategy: increasing revenue through indirect taxes while rewarding productivity and economic participation elsewhere.
State of Pakistan’s Solar Boom
Pakistan has witnessed a solar revolution in recent years:
-
Net-metering capacity has jumped from about 2.5 GW to over 4–5 GW in early 2025.
-
In 2024 alone, Pakistan imported nearly 17 GW of solar panels, mainly from China.
-
Solar now supplies roughly 10–14% of the country’s electricity, up from just 4% in 2021.
In short, solar is no longer niche—it’s a significant part of Pakistan’s energy narrative.
Who Wins—and Who Loses?
Pros:
-
Local manufacturers now have a competitive edge. With imported panels taxed, domestic producers can potentially offer panels at similar prices while earning a higher margin.
-
Over time, a stronger local solar industry could lead to increased job opportunities, investment, and value-added growth in Pakistan’s energy sector.
Cons:
-
Consumers and businesses will feel the pinch. An 18% markup on panel input costs is likely to increase the upfront price of solar installations.
-
Domestic installers, who rely heavily on imported panels, may need to pass on higher costs. That could slow down adoption, particularly among cost-sensitive households.
-
The Pakistan Solar Association has warned that the tax could hurt the momentum in rooftop solar and dampen investor enthusiasm.
Broader Budget Context
This solar tax is just one aspect of a broader budget strategy:
-
The government is shifting its revenue reliance toward indirect taxes, such as GST, targeting e-commerce, vehicles, and even solar panels.
-
Simultaneously, there is significant relief for salaried individuals through lowered tax slabs—a classic trade-off between targeted relief and expanded taxation.
-
The budget aligns with IMF requirements by expanding the tax net to include agriculture, retail, and real estate, while also tapping into import-linked sectors.
What It Means for You – and Pakistan
-
Households and small businesses considering solar will now pay more upfront. That’s especially impactful for urban middle-class consumers weighing electricity bills against solar kit costs.
-
Local solar manufacturers stand to gain an opportunity. But unless they can scale up production and efficiency, they may struggle to compete with still cheaper foreign-made kits.
-
The government must strike a balance between short-term revenue needs and long-term climate and energy goals. If this tax slows solar growth, it may result in higher emissions, increased imported fuel costs, and compromised energy resilience.
-
This move raises questions: How far will local manufacturers rise? Will the tax revenues justify the potential slowdown in solar adoption?
Final Take: A Tax with Trade-offs
Pakistan’s 18% GST on imported solar panels, introduced in the FY 2025–26 budget, is a bold step toward supporting local manufacturing and boosting indirect tax collections. While it may help level the commercial playing field, the risk of slowing down a fast-moving solar revolution is real, especially for ordinary citizens and energy-conscious businesses who depend on affordable panel imports.
Ultimately, the success of this policy hinges on government follow-through: supporting domestic industry growth, ensuring manufacturers ramp up quality and scale, and monitoring the impact on installations. Otherwise, Pakistan risks curbing one of its most shining energy success stories just as it’s reaching peak momentum.
For now, the solar tax is a calculated gamble, one that may nurture local industry but could dim Pakistan’s broader solar surge if not carefully managed.
