Government to impose 16% VAT on LPG from July

By Xinhua and The Weekly Vision

When Busia based businessman Gilbert Wandera went to buy an energy-saving cookstove for his home use recently, he found that the price had increased by about Sh. 1,000; he bought a similar stove in 2019 at Sh. 300 and hoped to buy two more for his mother. “I dropped the idea of buying two and went for one because it turned out to be expensive,” 

The predicament by Gilbert is shared by tens of Kenyan households as the cost of clean energy and energy-saving products rise in Kenya. Among the items whose prices are on the rise are cookstoves, lamps and cookers that use bio-fuel and briquettes. Clean energy experts have blamed the current situation for the imposition of value-added tax on cooking gas by the government, they were initially zero-rated.

Kenya first imposed a duty on products like briquettes cookstoves and bio-fuel stoves in 2018 as it sought to shore up its revenue amid struggling budget deficits

Kenya first imposed a duty on products like briquettes cookstoves and bio-fuel stoves in 2018 as it sought to shore up its revenue amid struggling budget deficits. The country is further set to impose a 16 per cent value-added tax on liquefied petroleum gas from July 1st 2021, according to the Kenya Revenue Authority. The tax would see the cost of the cooking gas rise by at Sh. 330 from an average of the current Sh. 200 for a 13kg cylinder of liquefied petroleum gas.

Jechoniah Kitala, chairman ‘Clean Cooking Association of Kenya’ said they have seen a reduction in sales of products like cookstoves since they were removed from tax-exempted products

Doris Nashipae, who works for Nairobi-based Koko Networks, a firm that sells bio-fuel items, noted that the taxation of clean energy items risks eroding gains made in the adoption of clean energy products. “This is not a long-term strategy as most of those expected to embrace clean energy is at the bottom segment of the society,” she said. Nashipae observed that instead of firms passing the high costs to consumers, they have been forced to absorb them to stay in business, but this may not work for long.

Jechoniah Kitala, chairman of the Clean Cooking Association of Kenya, said they have seen a reduction in sales of products like cookstoves since they were removed from tax-exempted products. The proposed value-added tax would see the market shrink further. For liquefied petroleum gas sellers in Kenya, the anticipated taxation spells doom for the sector, which had seen slow uptake of the clean cooking fuel.

The use of fuel in Kenya has been on the rise following a ban on logging that disrupted charcoal sale as well as the introduction of a tax on kerosene, which pushed prices higher. Statistics show that Kenyans used 312,100 tons of cooking gas in 2019, up from 222,300 tons in 2018. “The higher price may see us shut down our businesses because consumers would switch to other fuels that they consider cheaper,” said James Kyalo, a cooking gas seller in Kitengela, south of Nairobi.

Julie Ipe, senior director for market strengthening at Clean Cooking Alliance, said increased taxation measures targeting clean energy products are pushing millions of households to unclean energy that include firewood, charcoal and kerosene. “And with the measures, attendant health losses offset gains made in taxes by the government due to increased respiratory diseases,” Ipe said. She added that as the effects of the measures unfold, Kenya is also likely to lose carbon finance due to increased pollution and deforestation.” The best practice is to avoid taxing goods that come with social benefits. Kenya should promote the use of underutilized fuels like liquefied petroleum gas, solar and bio-fuels,” he said. 

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