The June Budget contained a proposal that will likely have a significant impact on the use of solar power by low-income households in Kenya. The removal of VAT exemption on solar accessories, including solar water heaters will impact basic solar equipment such as solar powered lights.
The step will spell an introduction of 16 per cent VAT on these items, leading to increased costs.
In September 2013, the government introduced a new VAT Act that imposed 16 per cent levy on solar powered products. However, after lobbying by various stakeholders, the Kenyan government exempted the items from VAT in 2014.
On July 30, 2018, the Energy Regulatory Commission (ERC) announced a new tariff structure that is set to lower the cost of electricity for low income households.
Many off-grid households are unlikely to benefit from the proposed lower tariffs. Primarily, these include Kenyans who live in rural areas and in remote parts of the country.
Recent data indicates that the North and North Eastern regions are scoring much lower on a number of development indices. For example, poverty levels are at 70 per cent while electricity access is only at seven per cent.
In view of this disparity, one of the interventions developed by the World Bank and the government of Kenya in collaboration with other stakeholders is the Kenya Off-Grid Solar Access Project for Underserved Counties (Kosap). It is being implemented by Ministry of Energy, Kenya Power and the Rural Electrification Authority (REA). Through Kosap, the government will be offering off-grid electrification to households where a stand-alone solar system is most appropriate.
On June 14, the International Finance Corporation shared insights on the new $150 million World Bank funded Kosap.
Later, the same day the Treasury proposed to impose VAT on solar appliances and systems. This tax defeats the noble objective by the same government partnering with other stakeholders like IFC.
The government has supported the solar industry by exempting inputs and raw materials for the manufacture of items such as solar panels, deep cycle-sealed batteries, which store solar power.
However, without access to appliances such as bulbs, radios, TVs, and refrigerators, solar power in itself is not useful to the communities.
Our neighbours in the East African Community are good examples of how governments can empower citizens to access solar powered appliances and systems.
Rwanda, Uganda and Tanzania exempt from VAT appliances such as solar-powered TVs, radios, irons, refrigerators, solar light bulbs, phone chargers and water heaters.
As we embark on the Government’s Big 4 Agenda, there is a need to consciously think about what may seem to be small contributors to the bigger vision.
Clean energy could mean that consumers who rely on kerosene lamps and firewood for lighting would benefit from better respiratory health and eye-sight, hence reducing the burden on the health systems.
It is time Kenya took a bolder step to zero-rate solar powered productive appliances. These products should remain within Wanjiku’s reach.