Experts want 14pc VAT on solar, cook stoves scrapped

Friday, December 18th, 2020 00:00 | By
Cooking stoves. Photo/Courtesy

Steve Umidha @UmidhaSteve

Green energy industry players have called for the amendment of Finance Act 2020 which introduced a 14 per cent Value Added Tax (VAT) on solar and cook stoves products.

They said this is important if Kenya is to successfully cut carbon emissions and offer universal energy access to its citizens.

President Uhuru Kenyatta signed the Finance Act 2020 which ultimately introduced a VAT on items previously exempted by law in June.

The changes included introduction of 14 per cent value tax to clean cooking, solar and wind products.

But now experts want sections of the Act in order to protect the overwhelming majority of off-grid consumers and households who access their energy needs through solar-powered energy solutions.

Cooking products

Solar home systems and clean cooking products (stoves and biogas) are essential in converting rural populations from over-reliance on toxic fuels such as paraffin and firewood. 

Kenya Renewable Energy Association (KEREA) chair, Kamal Gupta said this is key for preservation of individual health and reduction in environmental degradation.

“The proposed clauses will fast-track Kenya’s international commitments on reduction of carbon emissions and universal access to Energy,” he said. 

The clean cooking sector has over the years enjoyed fiscal incentives, with VAT zero-rating and exemption on clean cooking solutions like Liquid Petroleum Gas (LPG), improved cook stoves, and excise duty reduction on ethanol fuel for cooking.

Due to the incentives, LPG usage, for instance, has increased six times over the last two decades from approximately 0.6 million to 3.7 million households.

Bodies including the Voice of the Off-Grid Solar Energy Industry (GOGLA), Clean Cooking Association of Kenya and Africa Minigrid Developers Association has proposed amendments to the VAT Act, No.35, of 2013, and has already submitted a memorandum on Tax Laws (No.2) Bill, 2020 to the National Assembly Departmental Committee on Finance and National Planning that plans to have a committee sitting in the coming days.

“In order to realise equitable access, marginalised communities ought to be afforded affirmative action in the form of fiscal incentives.

This will even the energy access field with those who are on-grid,” said Patrick Tonui, Head of Policy and Regional Strategy at GOGLA.

Statistics show that the national benefits of exemptions will far exceed any tax revenues foregone by a factor of seven to one or more – a very good return on public investment. 

For instance, over the medium term, a mature renewable energy solar sector would not only generate economic benefits to citizens and communities, it will also generate employment - primarily in rural communities that most need these jobs.

This in turn will raise productivity and skills and increase direct taxation revenues from PAYE and other direct income taxes.

Additionally, investors surveyed said that because profits of Minigrid companies serving rural areas are so small, this additional tax will mean they will likely have to reduce or stop investing in Kenyan rural electrification mini-grid projects in the long run.

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