Taxes on hybrid cars, solar panels being withdrawn

NA committee rejects 18% ST on imported solar panels

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ISLAMABAD:

The National Assembly Standing Committee on Finance on Tuesday unanimously rejected the proposed 18% sales tax on the import of solar panels, while the government also announced the withdrawal of another controversial measure to increase sales tax on hybrid vehicles, reversing both the anti-environment initiatives.

The committee in its meeting, chaired by Pakistan Peoples Party's (PPP) National Assembly member (MNA) and former finance minister Syed Naveed Qamar, also raised questions on the proposed new bill, the Digital Presence Proceeds Act 2025 but did not announce its judgment.

The rejection of the 18% sales tax on import of solar panels and its parts, as announced by Qamar, is the first such rejection by the committee after it started discussing the Finance Bill. Unlike the Senate, the decisions of the National Assembly or its standing committee are binding in case of the Finance Bill.

The government had estimated Rs20 billion in revenues from the 18% sales tax on the import and supply of photovoltaic cells, whether assembled or not. Since the IMF had not endorsed the proposal, the rejection by the committee will not have any adverse implications for the IMF programme.

During the committee meeting, Federal Board of Revenue (FBR) Chairman Rashid Langrial argued that sales tax had already been levied on the local assembly of the solar panels; therefore, the rejection of the import stage tax could put the local industry at a disadvantage.

However, he could not give firm figures about the share of the local industry in the total sales but said that a very few percentage was supplied locally. "If the government did not accept our rejection, the National Assembly will veto it," Qamar said.

Qamar asked the government to find other ways for incentivising the local industry. Finance Minister Muhammad Aurangzeb said that the era of giving subsidies had ended. On that Qamar reminded him that the government had just announced subsidies in the budget for electric vehicles.

In the budget, the government had imposed 1% to 3% car engine levy to raise Rs10 billion for funding the electric vehicles. "It is a cross subsidy on electric vehicles", Aurangzeb said. "It is still a subsidy funded by someone else," retorted Qamar.

The government has long been trying to discourage the use of solar panels – a source of cheaper electricity – over the government-sold expensive grid-based power. "No political party in the National Assembly has supported the 18% tax and the government will have to withdraw it," Qamar said. The finance minister acknowledged the feedback.

Hybrid cars

Meanwhile, the government on Tuesday announced the withdrawal of the proposed increase in the sales tax rate from 12.5% to 18% on hybrid cars of up to 1800 cc. This would result in a loss of Rs7 billion potential revenue.

The reduced sales tax rate of 12.5% on the hybrid cars would stay, FBR Chairman Langrial stated. Although, he told the committee, the finance minister had announced it in the budget speech, the tax would not be increased.

It is the second time in the past one year when the government announced to increase the sales tax rate on hybrid cars but subsequently withdrew it before the approval of the budget by the National Assembly. Under the automobile policy, the government cannot increase the rate till June 2026.

However, the FBR chairman refused to withdraw the proposed increase in the sales tax rate for middle income group's up to 850 cc cars. In the budget, the government has proposed to increase the sales tax rate on 850 cc cars from 12.5% to 18%.

Langrial said that if a person can buy a Rs3 million small car, he can also pay 18% sales tax. It seems that after the budget small cars will become expensive but the luxurious SUVs will become cheaper, remarked MNA Usama Mela of the Pakistan Tehreek-e-Insaf (PTI).

The committee had a heated discussion on the issue of giving policing powers to the FBR and the fear of its abuse by the taxmen. The entire Finance Bill is like declaring martial law on businesses, remarked PPP MNA Nafisa Shah.

However, the chairman FBR took an exception to labelling the bill as a piece of martial law work. "The harsh words like martial law have been used but I want to clarify that I work for the democratic government," Langrial said, before opting to leave the meeting hall.

The standing committee also showed its discomfort over giving FBR's authority to the local police to trace the non-tax paid cigarettes and confiscate those. The members observed that this would give another window to the police to extract money from the people. "Poor people smoke to relieve stress but the rich can afford diet coke," Sharmila Faruqi remarked.

The committee also questioned the government's new bill, the Digital Presence Proceeds Act. The bill has been introduced to charge 5% tax on the value of online payments made to foreign digital companies like Netflix and Amazon.

FBR Member Dr Najeeb Memon said that the quantum of foreign payments was much more than Rs300 billion and the government could easily get Rs15 billion in revenues. He said that the credit card payments to firms like Netflix and Amazon stood at Rs300 billion this year. The size of tax-free sales by Temu was also Rs4 billion.

The committee members called for bring the bill as a separate law instead of making it part of the Finance Bill.