The Finance Bill set to be presented before Parliament this week poses a significant threat to Kenya’s remarkable progress in expanding electricity access to rural areas using solar energy systems. Millions of Kenyans could potentially be left in the dark if these new taxes are implemented.
The proposed taxes threaten to stifle the growth of this vital technology, raising concerns about the impact on low-income families and businesses without electricity. These groups, who stand to benefit the most from solar solutions, will be the hardest hit due to their limited financial resources.
Kenya has become a world leader in deploying solar energy, which has positively transformed the nation’s economy and the lives of its citizens. This growth has been driven by government support, resulting in a robust industry of solar companies and installers delivering solar solutions across the country, including remote and underserved off-grid locations.
Over the past four years, off-grid solar companies have distributed over 6 million products, reaching more than 15 million Kenyan citizens across 3 million households. This impressive achievement has significantly increased Kenya’s electrification rate, with over 30% of this growth attributed to off-grid solar lanterns and solar home systems (KEREA, 2024).
However, the proposed reintroduction of Value Added Tax (VAT) threatens to increase the retail price of basic solar energy products by 15% or more. Combined with other proposed taxes in the Finance Bill, including an “eco-levy” on rechargeable batteries, the price of some products could rise by up to 40%.
These measures jeopardize Kenya’s burgeoning solar industry and could render solar products unaffordable for many low-income and off-grid families and businesses. If the bill passes, the cost of a basic solar home system for lighting and phone charging—now a ubiquitous fixture across Kenyan villages and farms—would increase by 15% or more, typically adding 2,300 shillings to the cost of essential energy systems that many families already struggle to afford.
Data from a similar tax increase in 2020 suggest that these price hikes would mean roughly a quarter of families who can currently afford solar energy would lose access to the technology, leaving millions of families in the dark. This would have significant negative impacts on education, livelihood, health, and well-being for those forced to go without electricity.
Until now, the off-grid solar sector has been a major driver of green jobs in Kenya, creating thousands of office-based jobs and tens of thousands of indirect roles for agents who install, sell, and service solar kits, according to KEREA. However, solar companies anticipate having to lay off full-time staff in Kenya and cancel hiring plans if the Finance Bill applies VAT to solar products. Many indirect roles, including solar installers, are also at risk, threatening the livelihoods of many in the industry. Overall, over 10,000 green jobs are at risk nationwide, many in rural areas with limited employment opportunities.
GOGLA, a global solar energy association, calculated that adding VAT to solar products would undermine Kenya’s intended tax revenue generation. Companies in this sector currently contribute significantly to government revenue, paying over Ksh4.5 billion in taxes and levies in 2023 alone. GOGLA highlighted that a reduced supply of solar kits would result in losses of corporate income taxes, employment taxes, and import duties currently generated by the solar industry.
Kenya’s leadership in off-grid solar is at risk. These proposed changes could destabilize solar companies, leading to contractions and potential closures. Rural families would suffer, and the unintended environmental consequences could drive a resurgence in the use of harmful and polluting energy sources, such as kerosene lamps and diesel generators, counteracting progress towards a cleaner, sustainable future.
The decision by policymakers this week carries profound implications for Kenya’s transition to green energy, the accessibility of reliable electricity for families, and the nation’s economic trajectory.
