Pakistan faces a pivotal moment in its energy journey. Chronic power shortages, soaring electricity costs, and reliance on imported fossil fuels, which cost over $17 billion in 2022, according to the Pakistan Bureau of Statistics, strain our economy. Solar energy, with its promise of clean, affordable power, offers hope, especially for rural and off-grid areas where electricity access is limited or non-existent.

Yet, the 18 per cent general sales tax (GST) on solar panels proposed in the budget threatens to hinder this progress. This short-sighted move risks derailing the economic, environmental, and social benefits of solar energy. The government must postpone the GST, as keeping solar panel prices low is critical for Pakistan’s future.

The energy crisis and solar’s role

Pakistan’s energy challenges — frequent load-shedding and unaffordable tariffs — stifle growth and quality of life. With solar irradiance of up to 5.3 kWh per square meter daily, Pakistan is ideal for solar power. By 2023, installed solar capacity exceeded 2,000 MW as per the National Electric Power Regulatory Authority. A fraction of our potential, but still a vital start.

Pakistan could use the sun to boost rural electrification and job creation, but not if taxes make solar unaffordable, especially for remote communities

Solar adoption has surged in rural and remote areas where the government struggles to extend the grid. In these communities, solar panels have brought electricity for the first time, enabling children to study, businesses to operate, and families to access basic amenities. For these populations, electricity is a basic human right, and solar has been a lifeline. However, these communities are highly price-sensitive, and any cost increase could block their access to this essential resource.

The GST threat

The proposed 18pc GST would raise the price of a 580-watt solar panel from Rs17,000 to Rs21,000, deterring households, businesses, and especially rural communities from adopting solar. Earlier this year, a 17pc GST on solar equipment led to a demand dip. Installations slowed, businesses suffered, and consumers faced higher grid bills. The partial tax reversal in July (exempting panels but not inverters) offered relief, but an 18pc GST would hit harder, particularly in off-grid areas where affordability is critical. For these communities, higher costs could mean losing access to electricity, undermining a fundamental right.

The long-term gains of low prices

Low solar panel prices drive economic and environmental benefits. Solar systems offer a payback period of three to four years for homes and two years for businesses, given high grid tariffs. The International Renewable Energy Agency estimates renewables have saved $400bn globally in fuel costs, and Pakistan’s 2030 Solar and Wind Roadmap projects over 10pc savings in electricity costs by 2030 — billions in import bill reductions. This is critical for economic stability.

Environmentally, Pakistan’s 223 million tonnes of carbon emissions in 2022 (Global Carbon Atlas) could decrease by 20pc in a decade with widespread solar adoption, thereby reducing air pollution-related health costs, which currently stand at Rs365 billion annually, according to the World Bank. For rural areas, solar has transformed lives by providing reliable power where grid infrastructure is impractical. Price hikes would stall these gains, locking vulnerable populations out of a sustainable solution.

India’s example is telling. Low taxes on solar equipment drove their capacity to over 70,000 MW by 2023, slashing costs, boosting rural electrification, and creating 300,000 jobs, according to India’s Ministry of New and Renewable Energy. Pakistan, with similar potential, could follow suit — but not if taxes make solar unaffordable, especially for remote communities.

A policy misstep we can avoid

The government’s revenue needs are clear, but the projected Rs10-15bn from the GST is dwarfed by the costs of stalled solar growth: higher energy prices, increased fossil fuel imports, and missed climate targets.

For rural and off-grid areas, the impact is even more severe, as price hikes could deny electricity to those who need it most. Policy flip-flops — GST impositions, import restrictions, funding delays — have long plagued the solar sector, eroding trust among consumers and businesses. An 18pc GST would be another setback.

The way forward

The government should postpone the GST and prioritise incentives. It should fully fund the State Bank of Pakistan’s 6pc financing scheme, which is currently stalled. Streamline imports to avoid past bottlenecks. Offer tax breaks for local solar manufacturing to lower costs. These steps would boost adoption, create jobs, and make Pakistan a leader in renewable energy while ensuring that rural communities retain access to electricity.

Solar power is a necessity, not a luxury, especially for Pakistan’s underserved regions. Low prices drive deployment, save money, protect the environment, and empower vulnerable populations. The government must shelve the GST plan to secure our economic, ecological, and social future.

The writer is an advocate of renewable energy and the CEO of Solar Citizen. He can be reached at mujtaba.raza@solarcitizen.pk

Published in Dawn, The Business and Finance Weekly, June 23rd, 2025