Budget 2024-25: Pakistan offers solar panel concessions, ends tax breaks on EV imports to boost local industry

The Pakistani government offered solar panel concessions and ended tax breaks on imports of electric vehicles in the budget for the fiscal year 2024-25 to boost local industry.

The budget plan included a series of tax concessions aimed at reducing the cost of importing raw materials essential for manufacturing solar panels, inverters, and batteries.

Finance Minister Muhammad Aurangzeb detailed these incentives, explaining that the government is offering tax relief on the import of plant machinery, related equipment, and the necessary raw materials for solar panel production.

These measures are designed to foster local manufacturing, meet both domestic and export demands, and conserve valuable foreign exchange reserves.

Incentives for renewable energy

The budget document outlined specific subsidies on the import of goods and components required for manufacturing solar panels, inverters, and batteries.

Stakeholders in the renewable energy sector welcomed these concessions, urging the government to issue detailed guidelines promptly. Mustafa Amjad, Programme Director of the energy think tank Renewable First, praised the government’s move.

“Incentivising the manufacture of solar energy equipment by allowing the tax-free import of raw material is a great move. The decision will save foreign exchange and create hundreds of jobs,” he stated.

Amjad highlighted that the tax relief extends beyond just solar panels to include inverters, lithium batteries, solar cells, and solar batteries. He also noted that the cost of batteries is expected to decrease, making solar panel installation more affordable.

“Chinese companies are trying to make cheap batteries and exporting to Pakistan. In this way the local battery prices will also be reduced considerably,” he added.

Removal of EV import concessions

In contrast to the support for the solar industry, the government decided to end customs duty exemptions on the import of hybrid cars and luxury electric vehicles (EVs).

The removal of these concessions sparked mixed reactions. While local assemblers of hybrid vehicles are likely pleased, used car importers expressed dissatisfaction, arguing that the benefits will favor vehicle assemblers rather than consumers.

The government justified the removal of these exemptions by stating that importers of luxury EVs, which cost upwards of $50,000, should pay appropriate taxes and duties.

Arif Habib Limited (AHL) suggested that removing customs duty exemptions on completely built-up hybrid vehicles is expected to raise demand for locally produced hybrid vehicles. Additionally, shifting the basis of advance tax from engine capacity to the value of the cars could alter pricing strategies.

Strong reaction from industry

The automotive sector appreciated these budgetary measures. “The government is openly giving protection to a few assemblers who have rolled out costly hybrid vehicles in the name of higher localization,” stated HM Shahzad, Chairman of the All Pakistan Motor Dealers Association, criticizing the government’s approach.

Local part maker and exporter Mashood Ali Khan welcomed the decision to discourage the import of luxury vehicles, seeing it as a positive step towards enhancing local production capabilities. However, he pointed out that the budget lacks incentives for small cars, which are crucial for middle and upper-middle-income groups, and fails to promote small and medium enterprises adequately.

Overall, the 2024-25 budget presented a mixed bag of incentives and restrictions aimed at fostering local industries while reducing reliance on imports.

The focus on renewable energy and local manufacturing aligns with Pakistan’s broader economic and environmental goals, although the implementation and real-world impact of these measures remains to be seen.

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