A big win for Kenya: Government reinstates VAT exemption on renewable energy products

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Nairobi, Kenya, 2 July 2021: The Finance Act, 2021 was signed into law by H.E. President Uhuru Kenyatta on Wednesday, June 30th, 2021, reinstating critical VAT exemptions on renewable energy products including solar and wind generation equipment and clean cooking solutions. These measures will support the Government’s effort to ensure that 100% of all Kenyans have access to electricity and clean cooking fuels.

Decentralised renewable energy solutions, such as solar home systems and mini-grids, provide critical services to off-grid Kenyan communities. They are a key pillar for social and economic development, improving health, safety, and education, powering small enterprises, and boosting agriculture. Clean cooking solutions are vital for reducing toxic emissions in the home and enhancing welfare. The renewable energy sector is also supporting thousands of clean energy jobs in the country. The decision by President Kenyatta was welcomed by the industry and several civil society organisations.

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 [1]. Reinstating VAT exemptions for solar products is a win-win for both the Kenyan government and many of the Kenyan citizens, especially the lower-income rural communities that remain beyond the reach of the national grid. Fiscal and Economic Impact Analysis has definitively shown that the national benefits of reinstating the VAT exemptions will far exceed any tax revenues foregone by a factor of 7 to 1 or more – a very good return on public investment.

A consortium of renewable energy organisations in Kenya came together last year to appeal to the government to reinstate the VAT exemptions on renewable energy products. These organisations led by Kenya Renewable Energy Association (KEREA) include GOGLA, the Clean Cooking Association of Kenya (CCAK), and Africa Minigrid Developers Association (AMDA).

The consortium was also supported by partner organisations Power Africa Off-Grid Project, a Power Africa Contractor; SNV Netherlands Development Organisation; Green Mini-Grid Facility Kenya; Africa Clean Energy Technical Assistance Facility (ACE TAF) and Sistema.bio.

Speaking on the reinstatement, members of the consortium said:

“The Kenya Renewable Energy Association welcomes the reinstatement of exemption from VAT on Solar, Wind, Clean cookstoves, biogas, and biomass briquettes. This will go a long way into cementing Kenya’s position as a global leader in the adoption of renewable energy Kenya has huge potential to develop a prosperous future for her citizens that is powered by renewable energy as articulated by HE President Uhuru Kenyatta at a panel discussion at the Virtual Leaders’ Summit on Climate Change on April 23rd, 2021.” – Eng. Kamal Gupta,  Chairman,  Kenya Renewable Energy Association

“The reinstatement of the VAT exemptions is welcomed by the sector and will enable us to continue to scale up, delivering modern energy services to the millions of lower-income, rural households that continue to live beyond the reach of the grid in Kenya today at prices they can afford. Further, we will be able to continue creating much-needed jobs within those communities, enable their children to study at in the evening, and empower them to earn a living through utilizing solar technologies for productive purposes such as in farming or running micro, small and medium enterprises. All the while, this will be realized while reducing carbon emissions and helping them save money.” – Patrick Tonui, Head of Policy, GOGLA

“The VAT exemptions in the 2021 Finance bill will catalyze investments in the renewable energy sector and scale up the solar Minigrid market in the country. These initiatives will contribute to the acceleration of Kenya’s SDG 7, energy access objectives, through the deployment of least cost Minigrid technology.” – Joan Chahenza Director, Energy Access Financial Advisory, Africa Minigrid Developers Association (AMDA).

“The reinstatement of the VAT exemption will help make clean cooking products, especially the fuels more affordable for the millions of Kenyan households who still lack access to clean fuels to cook their daily meals. The VAT exemption is expected to help companies boost their sales and production of these products, creating sustainable jobs and social-economic growth.” –  David Njugi, CEO, Clean Cooking Association of Kenya.

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