Taxing renewable energy

Levelling heavy taxes on renewable energy technologies can only move the economy away from the government’s stated vision of a green Pakistan

Taxing renewable energy

The Alliance for Climate Justice and Clean Energy (ACJCE) has voiced concern over taxes imposed on solar panels, wind turbines and electric vehicles. In a letter written to the International Monetary Fund (IMF), it has said that these taxes can hamstring the market for renewable energy in Pakistan.

The ACJCE is a civil society alliance for a just energy transition away from fossil-fuels and towards cleaner and renewable resources. The letter was sent a few weeks ago. It stated: “We have been compelled to reach out to you given the damaging nature of the recent policy reforms instituted in anticipation of the resumption of the International Monetary Fund’s (IMF) Extended Finance Facility (EFF) for the government of Pakistan (GOP). With the Fund’s recent review under the $6 billion programme, the GOP has been forced to adopt a range of punishing fiscal measures that includes a devastating regime of taxes on solar panels, wind turbines, electric vehicles and related technologies. These measures are likely to cripple Pakistan’s nascent renewables energy market threatening the country’s ability to meet its environmental protection goals and international climate change obligations”.

The alliance has also demanded that the government of Pakistan promote renewable energy and remove general sales taxes levied on the machines and instruments required for it. Zain Moulvi, an associate of the Alternative Law Collective, a Lahore-based legal group that is also a part of ACJCE, says that the recently passed mini-budget included the tax on renewable energy equipment as a part of an IMF programme to increase tax collection and remove tax exemptions from all sectors of economy. “The IMF policies are destroying Pakistan’s social and environmental planning,” he says.

Moulvi argues that renewable energy resources are the biggest hope for providing cheap and clean electricity to the marginalised sections of Pakistan’s society. He says the imposition of heavy taxes on those is hurting the cause. These taxes, he says, will also harm the government’s policy to promote alternative and renewable energy and the use of electric vehicles to bring down environmental pollution.

Haneea Isaad, a researcher working with the Institute for Energy Economics and Financial Analysis is also associated with the ACJCE. She says the financial impact of the imposition of taxes on renewable energy equipment will be significant. “The latest tariffs approved by the National Electric Power Regulatory Authority (Nepra) for utility scale solar/ wind power indicates that these renewable energy sources have a levelised power generation cost of Rs 6-7 per kilowatt hour which is much cheaper than the cost of generating electricity from coal, oil and gas,” she says. She points out that the imposition of additional taxes can significantly raise these costs”.

This additional cost, she says, will hurt small and mid-sized enterprises and off-grid and lower-income households the most since roof-top solar systems have been their best bet to get cheap electricity.

Pakistan Solar Association (PSA), a trade body, is also a signatory to the letter sent to the IMF. Explaining the rationale for the letter, Waqas Moosa, a member of its executive committee, apprehends that the installation of solar panels in Pakistan will fall by at least 20 percent in 2022 due to the imposition of higher taxes. “Consumers unable to shift to solar due to its higher cost will end up paying an extra Rs 175 billion in electricity costs over the next 20 years,” he says.

On the other hand, he says, the extra tax revenue generated by the increased general sales tax on solar panels will yield only about Rs 20 billion during this period.

By levelling heavy taxes on renewable energy technologies, he says, the government is moving away from its stated vision of a green Pakistan. “Instead of supporting the development of solar panels and wind turbines at home, the government has imposed taxes that will deeply hurt the promotion of renewable energy in the country,” he says. He says the imposition of taxes will have a similar negative impact on the promotion of electric vehicles.

Transportation accounts for 43 percent of the airborne carbon emissions in Pakistan; so, the introduction of electric vehicles is crucially important to protect the environment. These vehicles, he says, require government support at least in the “initial years of their penetration in the market. Without that support, they will never become affordable for the general public.”

The writer is a reporter at The News International

Taxing renewable energy