Manufacturers of machines used for off-grid power projects have been granted tax cuts on their expenses as part of a strategy by the government to end consumer reliance on electricity from the national network.
In changes to the Income Tax law, the Treasury said all manufacturers of products used to generate and distribute electricity to both the national and off-grid systems qualified for capital allowances from July 1.
Capital allowances are similar to tax-deductible expenses. They allow a taxpayer to write off the cost of an asset over a period.
The Treasury changes expanded definition of the term “manufacture” of electrical equipment to include those meant for off-grid power projects.
The law now grants capital allowances to all parties involved in making and packaging goods from raw or semi-finished goods, generation of electrical energy, or transformation and distribution of electricity.
However, those involved in design, storage, transport, administration, or any other ancillary activity don’t enjoy tax rebates.
“This amendment means that transformation and distribution of off-grid electricity qualify as manufacture, and any machinery that is used for such purposes shall qualify for capital allowances of 50 percent in the first year of use, and 25percent per annum thereafter,” analysts at a law firm, Bowmans said in a brief.
“This amendment will allow entities to take a capital allowance deduction on the often-expensive investments incurred in a bid to shift reliance from grid power to on-site generation of electricity,” they further said.
Previously, such investments were not eligible for tax deductions; they were deemed to not be in the jurisdiction of “manufacture” as the power generated was used on-site and not distributed through the national grid.
Data by the Energy ministry shows that though national electrification in Kenya has risen from 23 per cent in 2009 to about 70 per cent today, much of this has been achieved alongside the central corridor of the country-Mombasa-Nairobi-Lake Victoria, leaving out North East and Northern Kenya un-electrified.
This means there’s a high opportunity to serve northeast and northern Kenya through off-grid projects such as the Kenya Off-Grid Solar Access Project (Kosap).
Kosap seeks to provide electricity to 1.3 million households in West Pokot, Turkana, Marsabit, Samburu, Isiolo, Mandera, Wajir, Garissa, Tana River, Lamu, Kilifi, Kwale, Taita Taveta, and Narok counties.
