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Sierra Leone: Impact of Goods and Services Tax and Import Duty Exemptions on Stand-Alone Solar Products – Policy Brief

 

The policy brief summarizes the findings and recommendations from the technical report on the impact of Goods and Services Tax (GST) and import duty exemptions for SAS technologies on boosting access to energy for all. It describes the trade-offs that need to be made between the short-term revenue that could be gained from levying import duties and GST today, against supporting the growth of the SAS sector and the broader fiscal, economic, social and environmental benefits that a vibrant SAS sector could deliver in the coming five years.

The findings compare the potential development of the SAS sector if GST and import duty exemptions are maintained against a scenario where both taxes were applied. The comparison scenario is hypothetical – exemptions have been in place since the market began to scale up in 2014 – and assume standard rates of 20% for import duties and 15% GST.

Policy Recommendations

  • Maintain both GST and import duty exemptions. The SAS sector is still growing into a vibrant
    private sector that can reach the poorest and most remote communities. Tax exemptions are a
    crucial part of a favourable enabling environment to help the market achieve scale, commercial
    viability and provide much needed access to energy and other services for households and small
    businesses.
  • The exemptions should be maintained with a clear process for periodic review. Stakeholders
    in the SAS market should continuously engage with Parliament to review the exemption policy as
    the country progresses closer to universal access and as companies achieve scale and begin to
    see stable profit margins. A clear framework such as periodic reviews would provide stability for
    investors and help coordination among public and private sector stakeholders.
  • Ensure exemptions are clearly tagged to quality-verified products to build consumer
    confidence. Low-quality products represent a dual risk as they both (1) undermine consumer
    confidence in SAS products and (2) reduce potential government revenue not only from GST and
    import duties but from corporation tax and income taxes that could be generated from informalsector
    SAS value chains.
  • A clear list of quality-verified exempt products must be clearly articulated and maintained.
    The MoE should work with the Renewable Energy Association of Sierra Leone (REASL) to
    establish a clear and easy to understand list of products, equipment and appliances that qualify for
    exemptions. These should meet the relevant IEC quality standards.
  • Coordination and capacity building. Strengthen coordination among national and international
    partners involved in the SAS products market; REASL, GOGLA, IFC Verasol and the Bureau
    of Standards should build synergy in the certification of SAS products to ensure that compliant
    products are imported and exempted from taxation. The Off-Grid Working Group (OGWG) should
    strengthen coordination among stakeholders in the energy sector especially dealers and distributors
    SAS products to ensure that prices of SAS products are affordable and match with the exemptions.
  • Capacity-building should also focus on enforcing quality standards. The Consumer Protection
    Agency should be engaged to discuss quality issues surrounding the importation of solar products.
    The capacity and capabilities of the Standards Bureau’s should be supported to test and confirm
    the quality of SAS products to facilitate the importation process and ensure there is a robust legal
    framework and enforcement mechanism for the importation of products that meet IEC standards
    and exemptions granted to quality-verified products.
  • Consumer awareness-raising: The MoE, REASL, and partners should work to facilitate consumer
    education and awareness campaigns that will cement the household solar category as a superior
    and affordable alternative. Awareness of solar products and home systems is low, and quality
    perception is mixed. Both retailers and consumers have no way of judging quality or differentiating
    high-quality products from low-quality products.
  • Developing additional targeted financing mechanisms: While tax exemptions are a crucial part
    of enabling the SAS industry to scale up and develop commercial maturity, they alone will not be
    enough to reach all households. Targeted supply side and/or demand side subsidies should support
    access for those unable to bear the full cost of an entry level solar product, while companies may
    need further support in accessing international and local currency credit lines.
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