The rapid uptake of renewable energy witnessed in Kenya over the last years now hangs in the balance, attributable to the Finance Bill 2020.

The bill seeks to change the Value Added Tax (VAT) status from exempt to standard rated 14 per cent on Liquid Petroleum Gas (LPG), inputs or raw materials supplied to manufacture of solar equipments including deep cycle-sealed batteries which exclusively use or store solar power.

Other areas that will now attract the VAT includes specialized equipment for the development and generation of solar and wind energy including deep cycle batteries which use or store solar power, plastic bag biogas digesters, biogas, leasing of biogas producing equipment, stoves, ranges, grates, and cookers. 

The introduction of 14 per cent value-added tax just when the country is trying to transition from dirty, harmful fuels like kerosene and charcoal is a cause for concern.

Notably, a lot of people have switched to using Liquefied Petroleum Gas (LPG) after prices of kerosene went up due to the introduction of VAT on petroleum products. The ban on logging also contributed to the growth in the consumption of LPG.

“Unfortunately, some households are paying for this clean fuel through their noses. They did not switch to this expensive fuel because their income had increased, but because they had no choice. Introducing VAT on cooking gas, for instance, will increase their financial burden further. Some will have little choice but to return to the dirty fuels,” standard noted in its June 14 editorial.

On Monday June 15 more than 31 Civil Society Organizations working on Energy and Climate Change met in a Zoom-Virtual meeting organized by The Kenya Climate Change Working Group (KCCWG) to validate fact sheet titled Impacts of Proposed Finance (tax amendment) Bill 2020 on the clean energy sector. The publication notes that the renewable energy sector has been one of the most progressive sectors in Kenya playing a major role in the economy. 

“Any reversal of the gains made will not only have an immediate and direct impact on the economy but also affect the global investments that have been made towards achieving Sustainable Development Goals.”says John Kioli - Chairman KCCWG

As per the World Health Organization (WHO) estimates, by the year 2000, only about half a million people in Kenya had access to clean fuels and clean energy technologies, however by 2018, over 5.2 million people had access to clean fuels and clean energy technologies. 

In 2018, the International Energy Agency (IEA) reported growth of Renewable Energy Share in Total Final Energy Consumption to 71.8 per cent. 

The upward trajectory is expected to grow further due to accelerated and aggressive penetration and investment in renewable energy. Government of Kenya has invested a lot in the last decade in ensuring that the sector of renewable energy is changing. 

This is part of Kenya’s commitment to the global campaigns and initiatives, in this case the Sustainable Energy for All initiative, in ensuring that Kenya achieves Vision 2030 strategy and Sustainable Development Goals (SDG) targets.

 “The gains made towards attaining 10 per cent forest cover by 2030 are partly through promotion of improved and clean energy cooking facilities. Increasing the cost of such renewables means that Kenyans will go back to inefficient exploitation of biomass,” notes Elizabeth Wanja Programs Officer KCCWG.

ECONOMIC IMPACT AND JOB CREATION

“Renewable energy sector directly contributes to thousands of jobs directly and millions indirectly. This touches sectors like agriculture, Forestry, energy, trade and manufacturing among other subsectors says Maimuna Kabatesi Project Manager Hivos, Green and Inclusive Energy East Africa.

As per Global Association for the off-grid solar energy (GOGLA), 28 per cent of household in Kenya with Solar installations generate more income thanks to their solar systems. 

This is due from cost saved from charging phones, alternative businesses, reduced cost of electricity, agriculture pumps and spending extra hours at work due to lighting For every 1MW of solar mini-grid capacity installed, our analysis finds that over 800 full-time-equivalent job-years would be created for Kenyan workers.

This includes 485 short-term jobs (for approximately 1 year) related to capital expenditure and approximately 14 annual jobs related to ongoing operational expenditures for a period of approximately 25 years or the a lifetime of the installed mini-grids.

GOGLA reported in 2018 that the Kenya off-grid solar market sold 750,000 units of product. Considering the 11 per cent annual growth in that sector, by 2022, over, 1.1 million Pico-solar appliances and SHS will be sold in Kenya. Providing over 12,000 direct, formal jobs and 24,000 direct, informal jobs.

It is also worth noting that there are approximately 130 (non-industrial) producers and 4,000 last-mile entrepreneurs (LMEs) of Improved Cooking Stoves (ICS) with an annual level of ICS sales ranging between 240,000 - 300,000 stoves12. This translates to over 20,000 jobs directly and indirectly in the value chain.

“Renewable energy sector has been one of the most progressive sectors in Kenya playing a major role in the economy. Any reversal of the gains made will not only have an immediate and direct impact on the economy but also affect the global investments that have been made towards achieving Sustainable Development Goals.”

The Tax Laws (Amendment) Bill, 2020 was published on March 30. The Bill has proposed amendments to the Income Tax Act, Value Added Tax Act, 2013, Excise Duty Act, 2015, Tax Procedures Act, 2015, Miscellaneous Fees and Levies Act, 2016 and the Kenya Revenue Authority Act, 1995.

Although it was expected that this Bill would contain the provisions giving effect to the tax relief measures announced by the President, when he outlined the Government’s initiatives aimed at addressing the economic impact of the COVID-19 pandemic, it is rather surprising that the Bill contains a raft of changes to the tax laws that will have a significant impact on taxpayers. 

Some of these changes directly lead to an increase in the prices of both LPG and kerosene, Solar and clean energy cooking technologies.

“While this is likely to reverse the gains already made in the renewable and clean energy sector in Kenya, we are also likely to see a trend whereby some low-income households will shift to alternative cheaper sources like firewood and charcoal thereby having a further negative impact on the environment negating the conservation measures that are being implemented by the Government.”