ISLAMABAD: During budget preparations, the International Monetary Fund (IMF) has posed fresh challenges for the government, with key tax incentives granted to the solar energy and electric vehicle (EV) sectors likely to be withdrawn or significantly reduced.

According to reports, the IMF remains firm on its demand to substantially curtail sales tax exemptions and concessions in the 2026–27 budget. In this regard, a proposal is under consideration to increase the sales tax on solar panels from the current 1% to 18%, while batteries and inverters may also be subjected to an 18% sales tax.

Reports further stated that the IMF is pushing for the complete withdrawal of tax incentives for the solar sector, raising concerns about a potential increase in prices of solar-related products from July 1, 2026.

The sales tax exemption currently available on CKD (completely knocked down) kits for electric vehicles is also likely to be abolished. However, the reduced 1% sales tax on locally manufactured or assembled electric vehicles will remain in place until June 30, 2026.

Similarly, the concessional sales tax facility for hybrid electric vehicles is set to expire on June 30, with no likelihood of extension.

Additionally, a proposal is under review to increase the sales tax on imported electric buses from 1% to 18%. Meanwhile, the exemption on electricity supply in tribal areas will continue until June 30, 2026.

Consultations between the government and the IMF on these proposals are ongoing, and a final decision is expected to be announced in the federal budget.