Energy ministry seeks tax cut to cushion poor homes from high power bills

What you need to know:

Ministry seeking to cushion poor homes from high costs as ERC effects uniform tariffs
Bottom power users are those consuming 50 units (kWh) and below monthly.
In the current tariff setup, the rich pay steeply for poor homes to enjoy the subsidy, a model that is set to be dropped for a uniform charge.

The Energy ministry has asked Treasury to cut taxes for bottom power users as a way of cushioning poor homes from high costs as Kenya moves to create uniform tariffs.

Energy secretary Charles Keter Friday directed the Energy Regulatory Commission (ERC) to create a new tariff in three months that will harmonise charges for domestic users.

But to ensure low-income households pay less as a socio-economic tool even with the uniform tariffs, the ministry wants Treasury to slash the 16 per cent value-added tax on electricity.

This is because uniform tariffs, initially expected to take effect in April but has delayed, would eliminate a subsidy that has long helped keep power bills for small consumers low.

“We’re engaging with Treasury on the need to cut VAT for low power users,” Mr Keter said at a media briefing Friday.

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50 units and below

Bottom power users are categorised as those consuming 50 units (kWh) and below monthly.

In September 2013, Treasury revised VAT on electricity from 12 per cent to 16 per cent, hitting consumers’ pockets.

Kenya’s current tariff setup is where the rich pay steeply for poor homes to enjoy the subsidy, a model that is set to be dropped for a uniform charge.

But this would mean the poor would be forced to pay more, hence the push by the Energy ministry to lower VAT on their power segment (below 50 units).

In January, the ERC said the current model is unsustainable and amounts to punishing large domestic consumers, which runs the risk of discouraging more use of the utility.

Bottom consumers (50 units and below) currently pay up to Sh13.65 per kilowatt hour (kWh) of power they use, inclusive of taxes, fixed charge and pass through-costs.

Sh7 lower

This is nearly Sh7 lower than the maximum cost paid by homes consuming between 51-1,500 units monthly at Sh21 per unit, inclusive of all charges.

Those consuming above 1,500 units pay at least Sh22.28 per unit or nearly Sh9 more than the poor.

The last time the energy regulator reviewed power tariffs was in July 2015.