Pakistan may soon witness an increase in the prices of both internet services and solar panels following new fiscal demands from the International Monetary Fund (IMF). The measures are reportedly being discussed as part of the IMF’s push for additional revenue generation under its ongoing bailout program with the Pakistani government.
Proposed IMF-Driven Tax Adjustments
According to officials familiar with the talks, the Federal Board of Revenue (FBR) has shared contingency plans with the IMF to boost revenue collection. These proposals include:
- Raising the General Sales Tax (GST) on imported solar panels from 10% to 18%.
- Increasing the withholding tax on internet services from the current 15% to as high as 18–20%.
These measures are expected to be activated if the government fails to meet its revenue collection targets during the first half of the fiscal year.
Why the IMF Is Pushing for Higher Taxes
The IMF’s focus on these sectors is based on three key arguments:
- Revenue Leakage from the Power Sector
The rapid adoption of solar energy has reduced electricity consumption from the national grid, thereby cutting revenue from electricity bills. The government, however, remains bound to pay capacity payments to power producers—estimated at over Rs 1.7 trillion this year—whether or not electricity is consumed. - Untapped Digital Tax Potential
With the internet becoming a core utility across Pakistan’s economy, the IMF views it as a viable tax base. The growth of the IT and digital service sectors offers potential for additional tax collection with minimal administrative effort. - Meeting Fiscal Discipline Targets
Pakistan’s IMF program includes strict benchmarks for fiscal consolidation. If the government cannot control spending or expand the tax net, it must introduce emergency tax measures—such as increasing GST and withholding taxes—to avoid missing quarterly targets.
Impact on Solar Energy Adoption
If implemented, the increased GST will make solar panels significantly more expensive for consumers.
- The retail price of a typical 10 kW solar setup could rise by 10–12%.
- Importers and installers warn that the move could stall the recent boom in solar adoption, especially among middle-income households.
- The policy could deepen inequality in energy access: wealthier families will continue to install solar panels, while lower-income groups will remain tied to the expensive national grid.
Pakistan’s solar imports surged to over 17 GW capacity in 2024, making the country one of South Asia’s fastest-growing solar markets. However, this rapid shift has also disrupted revenue flows in the energy sector, where grid costs are borne by fewer consumers each year.
Internet Sector: Digital Costs to Rise
The proposed hike in internet-related withholding taxes will likely translate into higher bills for millions of users.
- Telecom companies and internet service providers (ISPs) will face higher tax deductions, which will be passed on to consumers.
- The combined tax burden on internet services could reach up to 36%, making Pakistan one of the most heavily taxed internet markets in the region.
- This may slow digital inclusion and affect IT freelancers, startups, and small businesses that rely heavily on affordable connectivity.
Pakistan’s digital economy currently supports over 1.5 million freelancers and thousands of remote businesses. Industry leaders warn that higher taxes could push them toward alternate solutions, including VPN-based work or relocation to countries with lower digital taxation.
Balancing Revenue with Growth
The government faces a delicate balancing act. On one side, it must meet IMF’s stringent revenue targets to ensure loan disbursements and maintain economic stability. On the other, taxing renewable energy and digital services—two of Pakistan’s fastest-growing and innovation-driven sectors—risks slowing long-term progress.
- Taxing solar panels contradicts Pakistan’s climate commitments and clean-energy transition goals.
- Increasing internet taxes could weaken the momentum of the IT export industry, which brought in over $3 billion in 2024.
- The broader public, already burdened by inflation and energy costs, will face additional pressure on household budgets.
Public Response and Outlook
The potential tax hikes have sparked widespread concern among consumers and industry stakeholders alike. Many see these measures as short-term fixes that will hurt sustainable growth.
Economists argue that while revenue generation is necessary, targeting critical development sectors like renewable energy and internet infrastructure could be counterproductive. A more balanced approach—focusing on tax reforms, broadening the base, and curbing elite exemptions—could yield better long-term outcomes.
If implemented, these new taxes are expected to take effect in early 2026, depending on the government’s fiscal performance in the coming quarters.
Pakistan’s renewed commitments to the IMF could make essential services—like internet and solar energy—significantly more expensive. The challenge now lies in finding a middle path that satisfies international lenders without derailing Pakistan’s green and digital progress.
