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Renewable Energy Consortium proposes win-win amendments to VAT clauses

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As the National Assembly is expected to give the final nod to the desired tax reversals on Finance Act 2020 today,  a consortium of renewable energy organisations in Kenya is seeking a win-win solution.

This, the consortium says will be beneficial for the Kenyan government and the rural lower-income population who will be heavily affected by the introduction of the VAT, which was previously exempted by law.

Among others, the Act introduced a VAT of 14% to Clean Cooking, Solar and Wind Products thus, slowing down the Government’s effort of ensuring 100% of the population having access to electricity by 2022 and clean cooking solutions by 2030.

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The consortium has proposed amendments to the VAT Act, No.35, of 2013, submitting a Memorandum on Tax Laws (No.2) Bill, 2020 to the National Assembly Departmental Committee on Finance and National Planning.

These organisations are led by the Kenya Renewable Energy Association (KEREA) include; GOGLA, the Clean Cooking Association of Kenya (CCAK) and the Africa Minigrid Developers Association (AMDA).

Currently, 8.1 million Kenyans are still living without electricity, while 92% of the rural population relies on wood fuel for cooking which is harmful to their health.

To meet these targets the Act must be amended to reinstate VAT exemptions for clean cooking and solar products. 

This imposition of VAT entrenches the marginalization of Kenyans living in lower-income and rural communities the majority of whom live off the national grid and access their energy needs through solar power. During the COVID19 pandemic, Kenyans without electricity are less able to access basic health, safety and education information via radio, television or telephone and do not have power to support local enterprise.

Those without clean cookstoves are exposed to dangerous household air pollution, making them more vulnerable to the infection within their homes due to the significant impact of low air quality on respiratory illness. Clean electricity and cookstoves are essential at any time but are made even more so by the pandemic.

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Speaking on the proposed clauses for the Bill, The Chairperson of KEREA, Eng. Kamal Gupta stated that 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 the preservation of individual health and reduction in environmental degradation. The proposed clauses will fast track Kenya’s international commitments on the reduction of carbon emissions and universal access to Energy.”

“Poor and vulnerable rural population are the most disadvantaged when it comes to access to electricity as they are off the main grid. This limits their participation in the realization of economic and social rights. The subsidization of alternative energy solutions is paramount in line with Article 27 of the Constitution. 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.” Patrick Tonui, Head of Policy and Regional Strategy, GOGLA.

Aaron Leopold, CEO of the Africa Minigrid Developers Association stated that they now know that COVID 19 vaccines, and all vaccines for that matter, must be stored at incredibly cold temperatures using reliable energy sources.

“In rural areas of Kenya however, this may not be possible due to a lack of energy access. Mini grids provide this reliable, grid-quality power that could help Kenya recover more quickly from this pandemic, provide higher quality health services more generally, create tax paying jobs in the process by offering electricity than can power the rural communities who cannot be reached by KPLC. We should be taxing the problem, not the solution.”

Research has definitively shown 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 example, 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 minigrid projects moving forward.

The introduction of these taxes on products primarily relied on by rural communities who don’t have access to publicly financed utility services like the national grid, is a significant disenfranchisement of these communities.

Off-grid and clean cooking solutions are key enablers of economic activity, social development, education, communication and improvements in health and quality of life.

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