Following suggested adjustments to the FY25–26 budget, solar panel prices in Pakistan have skyrocketed in local marketplaces. Before the proposed 18% sales tax on imported solar panels even takes effect on July 1, 2025, system prices have skyrocketed, alarming both traders and consumers.
Proposed 18% Sales Tax on Imports:
The government has proposed levying an 18% sales tax on imported solar panels in the upcoming FY25-26 budget. This move is intended to level the playing field between imported and locally manufactured panels as Pakistan struggles to boost its domestic solar manufacturing capabilities. However, the immediate consequence has been a spike in prices, as traders pass on the anticipated extra costs to consumers 3.
Immediate Market Reaction:
Traders at busy hubs like Karachi’s Regal Chowk in Saddar report that customers are reacting with shock to the sudden hike. Some potential buyers, fearing further price escalation, rushed to make purchases, while others walked away at the new, higher rates.
For instance, a 5kW solar system which typically includes an inverter, battery (either water-based or lithium), iron frames, wiring, and installation is now priced between Rs 600,000 and Rs 700,000 for water battery setups. Meanwhile, systems equipped with lithium batteries have seen prices rise even further from
Rs 700,000–750,000 to around Rs 800,000–850,000.
Rising Per-Watt Costs:
Reports indicate that the average price per watt of solar panels has increased by approximately Rs 5.5 from Rs 30 to Rs 35.5 per watt fueling higher system costs across the board. A 585-watt panel, for example, has seen its price jump by nearly Rs 3,200, worsening the burden on households intending to adopt renewable energy solutions.
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Economic and Industry Implications
- Impact on Consumer Adoption:
As solar panels become more expensive, there is growing concern that higher initial costs may curb the adoption of solar energy in a country that has been instrumental in driving a green revolution. Pakistan’s solar market has experienced significant growth due to the affordability of cheaper panels, but these new tax-induced hikes risk stagnating that progress by making solar solutions less attractive to cost-sensitive consumers.
- Pressure on Local Manufacturers:
While the government argues that the tax will help protect and promote local solar panel manufacturing, industry experts counter that Pakistan currently lacks the capacity to produce high-wattage, efficient panels at scale. Consequently, the tax may end up increasing costs without offering suitable domestic alternatives, potentially even stimulating smuggling or grey market activities to circumvent the higher prices.
- Calls for Policy Revisions:
The Pakistan Solar Association (PSA) has voiced strong opposition to the tax proposal, urging the government to either remove the levy altogether or introduce complementary measures. These could include setting up tax-free zones for imports, reducing duties on raw materials for local producers, or offering financing support to soften the blow of increased costs.
An important turning point for Pakistan’s renewable energy sector is the price hike. Implementing the 18% tax without strong remedies could hinder current efforts to lessen dependency on fossil fuels by slowing down the adoption of solar solutions in both the residential and commercial sectors. On the other hand, a carefully considered policy response that promotes homegrown production while maintaining affordability could contribute to market stabilisation and long-term growth.