Solar panel, hybrid car tax rejected

ISLAMABAD:

A National Assembly panel on Tuesday unanimously rejected the 18% sales tax on solar panel imports, while the government announced it would withdraw another controversial proposal to increase in sales tax on hybrid vehicles, rolling back two controversial budget measures viewed as anti-environment.

The National Assembly Standing Committee on Finance also raised questions about the proposed Digital Presence Proceeds Act 2025 but did not issue a final decision. The meeting was chaired by Pakistan People's Party (PPP) MNA and former finance minister Syed Naveed Qamar.

"The committee unanimously rejects the 18% sales tax on import of solar panels and its parts," Qamar said after detailed discussion. Unlike the Senate, the National Assembly and its standing committee's decisions are binding in the case of the Finance Bill. This was the committee's first formal rejection since it began reviewing the Finance Bill.

The government had projected Rs20 billion in revenue from the 18% sales tax on the import and supply of photovoltaic cells, whether assembled or not. The International Monetary Fund (IMF) had not endorsed the tax, and its rejection by the committee will not affect the IMF programme.

FBR Chairman Rashid Langrial said a sales tax already applied to locally assembled solar panels, and exempting imports could hurt the domestic industry. However, he failed to provide reliable data on local production's share in total sales and admitted local supply was minimal.

"If the government doesn't accept our rejection, the National Assembly will veto it," said Qamar, urging alternative means to support local producers.

Finance Minister Muhammad Aurangzeb said the era of subsidies had ended, to which Qamar responded that the government had just announced subsidies for electric vehicles in the same budget.

"It is a cross-subsidy on electric vehicles," said Aurangzeb. "It is still a subsidy funded by someone else," replied Qamar. The budget introduced a 1% to 3% engine levy to raise Rs10 billion for electric vehicle subsidies.

The government has long sought to reduce reliance on solar energy, which provides cheaper electricity than costly grid power. "No party in the National Assembly supports the 18% solar tax. The government must withdraw it," Qamar said. The finance minister acknowledged the feedback.

Hybrid tax withdrawn

The government also announced it would withdraw the proposed increase in sales tax on hybrid cars up to 1800cc, maintaining the current 12.5% rate. The reversal will cost an estimated Rs7 billion in potential revenue.

"The 12.5% sales tax on hybrid cars will remain," said the FBR chairman. He said that although the tax hike had been announced in the budget speech, it would not be increased.

This marks the second time in a year that the government proposed raising the tax on hybrid vehicles, only to backtrack before the budget's approval by the National Assembly. Under the current auto policy, the tax rate on hybrid cars cannot be increased before June 2026.

However, Langrial said the government would proceed with raising the sales tax on small cars up to 850cc, often purchased by middle-income buyers. The government has proposed a sales tax rate increase from 12.5% to 18%.

Langrial argued that buyers of Rs3 million cars could afford to pay 18% sales taxes.

"It seems small cars will become more expensive while luxury SUVs get cheaper," remarked Pakistan Tehreek-e-Insaf (PTI) MNA Usama Mela.

FBR powers spark controversy

The committee also held a heated debate over proposals to expand the Federal Board of Revenue's policing powers, warning of potential abuse.

"The Finance Bill is like declaring martial law on businesses," said PPP MNA Nafisa Shah.

Langrial objected to the comparison. "Harsh words like martial law have been used, but I want to clarify that I work for a democratic government," he said before leaving the meeting room.

Committee members also opposed giving police the authority to trace and seize untaxed cigarettes under FBR directives. They warned the measure could open new avenues for bribery. "Poor people smoke to relieve stress, but the rich can afford diet coke," quipped MNA Sharmila Faruqi.

Digital tax plan questioned

The committee also questioned the Digital Presence Proceeds Act, a new bill aimed at taxing online payments to foreign digital companies like Netflix and Amazon. The bill proposes a 5% tax on the value of such payments.

FBR Member Dr Najeeb Memon said annual foreign payments exceeded Rs300 billion, with potential to raise Rs15 billion in tax revenue. He said credit card payments to Netflix and Amazon alone hit Rs300 billion this year, while Chinese e-commerce platform Temu made Rs4 billion in tax-free sales.

Committee members urged the government to introduce the digital tax measure as a separate law, not as part of the Finance Bill.