This archive report was first published on 10 June 2020.
Kenya's clean cooking sector is facing a potential setback as a proposal to introduce a tax on solar and cookstoves gains momentum. The proposal, which is part of the Finance Bill 2020, aims to delete clauses providing exemptions to solar and clean cooking solutions, effectively subjecting them to a 14% Value Added Tax (VAT).
According to a draft report by PriceWaterHouse Coopers, the move will have far-reaching effects on the sector, including increased costs for manufacturers and raw materials, making products more expensive for consumers. This, in turn, will slow down the purchase of these products, ultimately affecting the growth of the industry.
The clean cooking sector has enjoyed fiscal incentives, including 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. As a result, LPG usage has increased six times over the last two decades, from approximately 0.6 million to 3.7 million households.
However, the introduction of VAT at the rate of 14% will erode numerous gains made towards achieving 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.
Experts argue that 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.
Speaking at a webinar convened by the Alliance for Civil Society Organizations for Clean Energy Access (ACCESS), experts emphasized the need to drop the proposal at least for the time being. They argued that the introduction of VAT will negatively impact the clean cooking sector, making it harder for companies to invest and create jobs.
According to a recent study, over 70% of the Kenyan population still relies on biomass, while LPG usage now stands at 19%. The Clean Cooking Association of Kenya (CCAK) has appealed to Members of Parliament to advocate for a cleaner environment and ensure that tax benefits are passed down to end-users.
