Tax exemption for solar will woo investors

Solar panels

Solar energy has gained traction in most countries around the world.

Photo credit: Shutterstock

Sustainable and affordable energy is one of the goals of Kenya Vision 2030 and the government has, without a doubt, been offering incentives to potential investors in renewable energy.

The Feed-in Tariff (FiT) Policy on renewable energy was established in 2008. Originally for electricity generated from wind, biomass and small hydropower sources, following revision in 2010, FiTs now also provide support to geothermal and biogas sources and solar electricity generation.

The objective of FiT is to facilitate resource mobilisation by providing investment security and market stability for investors in electricity generation from renewable energy sources, and reduce transaction and administrative costs and delays associated with the conventional procurement processes.

Low income earners

Nevertheless, investors in this sector have also had their fair share of hardships, and this was expressed by the drastic ascension into law of the Tax Law Amendment Bill 2020, which sought to put up taxation on this sector.

This Bill proposed a 14 per cent VAT tax on all imported supplies in this field, ostensibly to cushion the economy from the adverse effect of the global Covid-19 pandemic.

These changes would have had a pseudo motive — to dampen the investors’ appetite in the sector, besides leading to higher prices of solar equipment and, therefore, forcing suppliers to transfer the tax pressure to consumers.

Higher retail and installation costs would lock out low-income earners from this source of energy and foil the plan for universal energy access by 2022. Jobs created through distribution of solar equipment would be lost.

However, the recent move by the government to exempt solar products from taxation has two instant benefits: Encouraging investors to set up shop locally and reduced tariffs for consumers, making solar energy a big competitor to other forms of electricity.

Solar energy

Major electricity consumers have shifted to solar energy as a primary source of power.

Solar energy has gained traction in most countries around the world. For example, Sweden is working towards eliminating fossil fuels from electricity generation by 2040 while Costa Rica aims at complete carbon neutrals this year.

Most of Nicaragua’s electricity is from solar and wind, while up to 98 per cent of the energy used in Scotland is wind and solar, Germany has set a target of 65 per cent of its energy to come from renewable sources by 2030, Uruguay has improved from 40 per cent to almost 100 per cent running on renewable energy (solar and wind), Denmark gets half of its energy from solar and wind, in the United States a solar panel is installed every so often, and, surprisingly, China, the world’s largest carbon emitter, has the largest amount of solar PV and wind capacity installed. In Africa, Morocco is about to complete the largest concentrated solar plant in the world.

Kenya has attracted notable large-scale energy projects but its potential is largely untapped. But with solar products now tax-exempt, expect huge investments in clean energy, industrialisation, and foreign direct investment and job opportunities.

Welcome!

You're all set to enjoy unlimited Prime content.