A new policy came into effect on 1 July, changing the status of off-grid solar equipment and accessories in Kenya, which were previously exempt from a 14% VAT.
The adopted Bill removed the current VAT exemption for “specialised equipment for the development and generation of solar and wind energy, including deep cycle batteries, which use or store solar power”.
Previously, a similar proposal to reintroduce VAT was already proposed by the National Treasury in April.
This effort was ultimately rejected by the National Assembly through efforts of GOGLA, a global association for the off-grid solar energy industry, and other stakeholders on grounds that it would conflict with the national priorities for universal energy access.
However, the VAT has now been introduced effective from 1 July 2020.
Charity Wanjiku, the chief operating officer of Strauss Energy, speaking with ESI Africa commented on the introduction of the VAT: “It’s one that in my opinion will erode progress made so far, and see a lot of significant gains watered down in an attempt to provide reliable, clean and cost-effective energy to all.”
She added: “Solar products and equipment will now cost 14% more, a cost that will be passed down to the consumer, who are predominantly low-income households in Kenya, using solar-powered lights.
“The imminent unaffordability of solar products will have a ripple effect from heightened insecurity in the streets to food insecurity for lack of solar pumps used for farming.”
GOGLA’s position on solar VAT
GOGLA’s stance on the introduction of VAT is that it will result in an increase in the price of solar equipment.
GOGLA’s position echo’s Wanjiku stating that most companies will have no choice but to transfer this increase to the consumer. “This will have a significant impact on the ability of low-income households in Kenya to purchase solar-powered equipment including the basic solar-powered lights.”
The association feels strongly that the VAT will erode the progress made towards the achievement of universal energy access by 2022 and Kenya’s development agenda to achieve Sustainable Development Goal (SDG) 7, which aims at ensuring access to affordable, reliable, sustainable and modern energy for all.
Due to the unique PAYGo business model, together with an effective door-to-door distribution model, the sector has created many jobs in the rural communities states GOGLA. “These jobs are now at risk.”
According to World Food Programme projections, the number of people facing acute food insecurity is set to double by the end of 2020 due to the economic impact of COVID-19. Reducing access to solar products, including solar pumps, reduces the options to mitigate this crisis.
GOGLA and the local industry have been heavily involved in the discussions and negotiations related to this legislative development over the last few months.
The VAT development, which was clarified by the National Treasury to protect the local manufacturing industry, is disappointing and worrying, states GOGLA.
The country was well poised to continue to make significant progress in bringing energy access to vast areas of the country through off-grid solutions that the government already realises and acknowledges cannot be served otherwise.
The introduction of new taxes on off-grid solutions will hamper this progress by affecting job creation and important improvements in quality of life and solutions that are bringing new opportunities for economic activity to these hard to reach communities stated GOGLA.