Pakistan, IMF weigh tax hikes on solar panels and internet
“Islamabad and the IMF are drafting contingency taxes if revenues miss targets.”
Key points
- Islamabad and the IMF are drafting contingency taxes if revenues miss targets.
- Options include hiking GST on imported solar panels to 18% and lifting internet withholding to 18–20%.
- Measures would activate only if H1 shortfall persists and spending cuts fall short.
- IMF cut growth outlook to 3.25–3.5% but kept the 11% tax-to-GDP goal.
ISLAMABAD: Pakistan and the International Monetary Fund are discussing fallback tax measures that could be activated if revenues undershoot in the first half of the fiscal year and the government fails to rein in spending. According to discussions reported on Friday, the menu of contingencies includes increasing the general sales tax on imported rooftop solar panels and raising withholding tax on internet services.
The options under review would be reflected in the IMF’s second review report, which is due after approval of a $1 billion tranche under the Extended Fund Facility. Officials said the triggers are two-fold: a larger-than-projected shortfall against Federal Board of Revenue targets through December and an inability by the Finance Ministry to implement the planned expenditure cuts.
One proposal is to lift GST on imported solar panels from 10% to 18% from January 2026 if the fallback is invoked. Another would take the withholding tax on internet services from the present 15% up to 18% or 20%. Policymakers argue that rapid uptake of rooftop solar has reduced grid demand, swelling capacity payments that are estimated near Rs1.7 trillion this year.
FBR estimates suggest imports could enable 25,000–30,000 MW of generation in coming years, while current rooftop installations produce about 6,000 MW that could double quickly. The IMF has revised its GDP growth projection to between 3.25% and 3.5% from 4.2% earlier, and agreed to lower the FBR’s gross collection target in line with the weaker outlook, though the 11% tax-to-GDP objective remains intact.
After a first-quarter shortfall of Rs198 billion against a Rs3.08 trillion target, the FBR must collect Rs6.695 trillion by end-December. Officials calculate the existing 10% GST on imported solar panels could fetch Rs40–50 billion, while moving to 18% would add Rs20–30 billion in the remaining period.
Telecom and digital-access experts warn that steeper internet taxes would squeeze affordability, disproportionately affecting low-income and rural users and widening the digital divide even as connectivity becomes essential for education, work and health services.
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