Islamabad has witnessed a crucial development in the ongoing budget deliberations, bringing significant relief to consumers and proponents of green energy. A National Assembly panel on Tuesday delivered a unanimous rejection of the proposed 18% sales tax on solar panel imports, while simultaneously, the government announced its decision to withdraw another contentious proposal: an increase in sales tax on hybrid vehicles. This decisive rollback addresses two highly debated budget measures that were widely perceived as detrimental to environmental sustainability efforts.
The National Assembly Standing Committee on Finance, led by Pakistan People’s Party (PPP) MNA and former finance minister Syed Naveed Qamar, also raised pertinent questions regarding the proposed Digital Presence Proceeds Act 2025, though a final decision on this matter remains pending.
“The committee unanimously rejects the 18% sales tax on import of solar panels and its parts,” stated Chairman Qamar after extensive deliberation. This marks a landmark moment, as unlike the Senate, the decisions of the National Assembly and its standing committees are binding in the case of the Finance Bill. This represents the committee’s first formal rejection since it began its review of the Finance Bill.
The government had projected a revenue collection of Rs20 billion from the 18% sales tax on the import and supply of photovoltaic cells. Notably, the International Monetary Fund (IMF) had not endorsed this particular tax, meaning its rejection by the committee will not impact the ongoing IMF program.
FBR Chairman Rashid Langrial argued that a sales tax already applies to locally assembled solar panels, and exempting imports could potentially harm the domestic industry. However, he was unable to provide concrete data on the local production’s share in total sales and admitted that local supply remained minimal. “If the government doesn’t accept our rejection, the National Assembly will veto it,” asserted Qamar, urging the exploration of alternative methods to support local producers.
Finance Minister Muhammad Aurangzeb contended that the era of subsidies has concluded, to which Qamar swiftly countered by pointing out the government’s recent announcement of subsidies for electric vehicles within the very same budget. “It is a cross subsidy on electric vehicles,” responded Aurangzeb. “It is still a subsidy funded by someone else,” retorted Qamar. The budget had indeed introduced a 1% to 3% engine levy with the aim of generating Rs10 billion for electric vehicle subsidies.
The government has long expressed a desire to reduce reliance on solar energy, which provides a more affordable alternative to costly grid power. “No party in the National Assembly supports the 18% solar tax. The government must withdraw it,” Qamar emphatically stated. The finance minister acknowledged the strong feedback from the committee.
Hybrid Tax Withdrawn: A Reprieve for Green Commutes
In another significant announcement, the government confirmed its decision to withdraw the proposed increase in sales tax on hybrid cars up to 1800cc, thereby maintaining the current rate of 12.5%. This reversal comes at an estimated cost of Rs7 billion in potential revenue. “The 12.5% sales tax on hybrid cars will remain,” confirmed the FBR chairman, indicating that despite the initial announcement in the budget speech, the tax hike would not be implemented.
This marks the second instance within a year that the government has proposed raising the tax on hybrid vehicles, only to backtrack before the budget’s final approval by the National Assembly. Under the existing auto policy, the tax rate on hybrid cars cannot be increased before June 2026, offering a period of stability for this segment.
However, Langrial confirmed that the government intends to proceed with raising the sales tax on small cars up to 850cc, vehicles frequently purchased by middle income buyers. The proposed increase would see the sales tax rate climb from 12.5% to 18%. Langrial reasoned that buyers of Rs3 million cars could afford to bear the 18% sales taxes. This distinction drew a sharp remark from Pakistan Tehreek e Insaf (PTI) MNA Usama Mela: “It seems small cars will become more expensive while luxury SUVs get cheaper.”
FBR Powers and Digital Tax Under Scrutiny
The committee also engaged in a heated debate over proposals to expand the Federal Board of Revenue’s policing powers, with members expressing concerns about potential abuse. “The Finance Bill is like declaring martial law on businesses,” stated PPP MNA Nafisa Shah, drawing a strong objection from Langrial, who countered, “Harsh words like martial law have been used, but I want to clarify that I work for a democratic government,” before he exited the meeting room.
Committee members also voiced opposition to granting police the authority to trace and seize untaxed cigarettes under FBR directives, warning that such a measure could create new avenues for bribery. “Poor people smoke to relieve stress, but the rich can afford diet coke,” quipped MNA Sharmila Faruqi, highlighting the socio economic implications.
The committee further questioned the Digital Presence Proceeds Act, a new bill designed to tax online payments to foreign digital companies such as Netflix and Amazon. The bill proposes a 5% tax on the value of these payments. FBR Member Dr Najeeb Memon revealed that annual foreign payments exceed Rs300 billion, with a potential to generate Rs15 billion in tax revenue. He cited that credit card payments to Netflix and and Amazon alone reached Rs300 billion this year, while the 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, rather than incorporating it into the Finance Bill, advocating for a more comprehensive legislative approach.
