• Friday, 01 March 2024
In order to reduce costs, the state will halve the VAT on electricity.

In order to reduce costs, the state will halve the VAT on electricity.

In proposed reforms aimed at lowering the cost burden on consumers, the government intends to reduce VAT on electricity bills.

In a white paper, the Energy Ministry proposes gradually lowering VAT on electricity from 16% to 8%, as well as lowering two other levies imposed on power bills by the Energy and Petroleum Regulatory Authority (Epra) and the Rural Electrification and Renewable Energy Corporation (Rerec).

To assist the Kenya Revenue Authority (KRA) in meeting its collection targets, the state increased VAT on electricity from 12% to 16% in 2013.

In a white paper, the Energy Ministry proposes gradually lowering VAT on electricity from 16% to 8%, as well as lowering two other levies imposed on power bills by the Energy and Petroleum Regulatory Authority (Epra) and the Rural Electrification and Renewable Energy Corporation (Rerec).

To assist the Kenya Revenue Authority (KRA) in meeting its collection targets, the state increased VAT on electricity from 12% to 16% in 2013.

In its white paper, the ministry also proposed cutting the Epra charge in half, from three cents per unit to 1.5 cents per unit. Kenya Power collects the levy and remits it to Epra for operational expenses.

The Rerec levy, which is charged at 5% of the consumption charge, is also being reduced. The levy is paid to Rerec in order for them to carry out rural electrification and connect more households to the national grid.

"The reduction in base tariffs and fuel cost charges (FCC) is critical to reducing energy costs," says the paper, "as this will account for 85 percent of the targeted reduction in average consumer tariffs."

The paper also proposes lowering the FCC by up to 80% by gradually reducing thermal power consumption and replacing it with less expensive renewable energy.

Despite the fact that the fuel component is the single largest component of the electricity bill, Kenyans consumed only 6% of thermal power in 2020, making it by far the most expensive power source.

"A reduction in energy costs will necessitate a multi-pronged intervention focused on each of the cost drivers, but a reduction in base tariffs and FCC represents the greatest opportunity for effecting change," it said.

 

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