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Experts want law on 14p.c VAT on solar, cookstoves products ratified

By Steve Umidha @UmidhaSteve

A consortium of energy experts have called for the amendment of the recently passed Finance Act 2020, which had introduced a 14 per cent Value Added Tax (VAT) on solar and cookstoves products, if Kenya is to successfully cut carbon emissions and offer universal energy access to its citizens.

President Uhuru Kenyatta had in June signed The Finance Act 2020 which ultimately introduced a VAT on items previously exempted by law including the introduction of 14 per cent value tax to clean cooking, solar and wind products.

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

“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. This is key for preservation of individual health and reduction in environmental degradation.

Adding that, “The proposed clauses will fast track Kenya’s international commitments on reduction of carbon emissions and universal access to Energy,” said the Chairperson of Kenya Renewable Energy Association (KEREA), Kamal Gupta.

The clean cooking sector has over the years enjoyed fiscal incentives, with the VAT zero-rating and exemption on clean cooking solutions like Liquid Petroleum Gas (LPG), improved cookstoves, 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.

The confederation which also include, The Voice of the Off-Grid Solar Energy Industry (GOGLA), the Clean Cooking Association of Kenya (CCAK) and the Africa Minigrid Developers Association (AMDA) 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 realize equitable access, marginalized 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, GOGLA.

Statistics show that the national benefits of exemptions will far exceed any tax revenues foregone by a factor of 7 to 1 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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