Experts oppose tax proposal on solar and cookstoves product

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NAIROBI, KENYA: The civil society group in clean energy sector wants a proposal to introduce a tax on solar and cookstoves products in Kenya be dropped at least for the time being.

Speaking at a Webinar convened by the Alliance for Civil Society Organizations for Clean Energy Access (ACCESS), the experts argue that the proposal would significantly water down gains towards access to modern energy for all.

From a tax expertise perspective, PriceWater House Coopers says the Finance Bill 2020 proposal of deleting clauses providing exemptions to solar and clean cooking solutions will have far-reaching effects on the sector.

“Deleting the clauses means manufacturers of certain products which currently enjoy exemption will now attract VAT of 14 per cent. The cost of inputs and the raw materials will be affected and increase,” argues PWc in a draft report Webinar report convened on June 5.

“The import for sale will also attract the 14 per cent making the product more expensive. Once products are expensive, this will slow down the purchase.”

The clean cooking sector has over enjoyed fiscal incentives, with the VAT zero-rating and exemption on clean cooking solutions like Liquid Petroleum Gas (LPG), improved cookstoves, and excise duty reduction on ethanol fuel for cooking.

Due to the incentives, LPG usage for instance has increased six times over the last two decades from approximately 0.6 million to 3.7 million households.

“Thus, the introduction of VAT at the rate of 14 per cent will erode numerous gains that have been made towards the achievement of universal energy access by 2022 and Sustainable Development Goal (SDG) 7 which aims at ensuring access to affordable, reliable, sustainable and modern energy for all,” the group says in a draft webinar report.

“The overwhelming majority of off-grid consumers and households who access their energy needs through solar-powered energy solutions come from lower-income, rural communities where VAT exemption on the products has played a critical role in increasing affordability.”

National Treasury CS Ukur Yattani, expected to deliver 2020/21 budget highlights on Thursday

Burn Manufacturing Company based in Ruiru, Kiambu County fabricates cookstoves which consume fuels 50 per cent less and emissions that are 65 per cent less. The company estimates that before the VAT exemption, the annual growth was 10 per cent. When the sector VAT was zero-rated, the growth increased to 30 per cent annually, it says.

“Current zero-rating is working well for the cookstoves sector.” The company says it has seen an increase of employment from 100 jobs to 350 jobs. In addition to other indirect jobs. Women are benefiting from job opportunities.

“VAT reinstatement will affect profits and the growth pace of the industry will be slow. Making investment decisions will be hard and companies may opt to invest in other countries with favorable fiscal incentives.” The Webinar meeting heard.

Based on a recent study, Clean Cooking Association  of Kenya (CCAK) disclosed that over 70 per cent of the Kenya population still relies on biomass. LPG usage now stands at 19 per cent compared to 3 per cent in 10 years ago.

“The cookstove sector has seen investments worth over Sh5 billion. An enabling environment is required to boost investments,” noted CCAK in its appeal to Members of Parliament to advocate for a cleaner environment.

The ministry of energy (MOE) assured participants of engagement with the National Treasury on the matter.

“The aim is to see a well-growing sector with all the players which is well regulated. We urge the private sector to ensure that tax benefits need to be passed down to the end-users.”

The purpose of the webinar co-convened by KCCWG, CCAK, Hivos, CAFOD, WWF, and SEAF-K was to bring stakeholders together and deliberate on the implications of the Finance Bill 2020.

Panelist representatives from Burn Manufacturing, Kenya Renewable Energy Association, Ministry of Energy, Price water House Coopers Africa, the government, private sector, civil society, research organization drawn from across the counties took part in the discussions.