You are here:

Impact of Tax Incentives on Access to Stand-Alone Solar. Policy recommendations from analysis in Malawi, Rwanda, and Sierra Leone: Policy Brief

 

The importance of stand-alone solar (SAS) products is now well recognized by governments who deploy a range of policies to support the growth of the sector. SAS products often represent the most cost-effective way of providing electricity to unserved households in sparsely populated rural areas, where it is expensive and impractical at least in the short-term to extend large grid infrastructure, and where customers often have relatively low ability to bear the financial cost of energy access.

While many African governments have implemented Value Added Tax (VAT) and duty exemptions, not all countries provide tax exemptions, and/or these exemptions are not always effectively or consistently implemented. This is in part because of a limited evidence base on the benefits of granting exemptions, and the financial cost and capacity development needed to consistently implement such incentives. Therefore many governments have not assessed the impact of taxes foregone on SAS uptake and the full range of socioeconomic benefits to the different stakeholders – government, households, and the environment. Even where exemptions are granted, inconsistent application at the border remains a major challenge. Codes do not always clearly define the components of the standalone system that are exempt. In the absence of an evidence base to support tax exemptions there is a risk of reversing existing policies as countries face a challenging public finance context because of the COVID-19 pandemic.

Countries that previously had exemptions are now reviewing these policies, as they need to balance priorities given the economic downturn, which is both reducing tax receipts and increasing the need for public spending. These policy changes will potentially have an adverse effect on the ability to achieve energy access targets. For example, in June 2020, the Kenyan National Assembly passed the 2020 Finance Act that introduced 14% VAT on standalone solar products which will likely erode the progress made towards the achievement of universal energy access by 2022.

Share this
Tags:
Was this article helpful?
Dislike 0 0 of 0 found this article helpful.
Views: 63
Previous:
Next:
X