The Institute of Economic Affairs (IEA) has urged the Government to review its tax regime on solar energy equipment.
A report by IEA in collaboration with Sydenham Solar dubbed “Enhancing Reliable Electricity Access Through Solar Power Energy,” singled out the imposition of Value Added Tax (VAT) on solar power equipment as having driven up the cost of solar power products thereby hindering the uptake of solar power.
This comes nearly a year after the National Assembly passed the Finance Bill, 2020 that resulted in the introduction of a 14 percent VAT on off-grid solar products.
Since the bill took effect on July 1, last year, the status of solar equipment and accessories, which were previously tax-exempt, is now subject to VAT at the rate of 16 percent.
IEA has expressed concerns over the unsustainability of this tax rate on solar power, which most Kenyans have turned to in areas where the national grid is not accessible nor economically viable.
Rural areas account for 57 percent of solar energy consumption, with peri-urban accounting for 35 percent and urban areas 26 percent.
The primary uses for solar in domestic setup include house hold lighting at 94 percent and mobile phone charging at 24 percent. Secondary uses include powering other home appliances, pumping water, security appliances and heating.
According to the report, 1.3 billion people globally do not have access to electricity, with 95 percent of them living in Sub-Saharan Africa and South Asia.
In Kenya, solar energy has bridged this gap with between 25,000 to 30,000 solar modules being traded in Kenya annually, according to the report.
Solar power is the cheapest source of renewable energy to set up in the country as it costs Ksh. 4,500 for 100 Watts per panel. This is compared to setting up a generator in Kenya which costs Ksh.170,000 and a geothermal plant that costs Ksh.300,000 per kilowatt.