No Budget sunshine for Tanzania’s nascent solar Industry

What you need to know:

  • Unfortunately in this year’s budget speech, there was no mention of the opportunity for solar, which is a green energy that has had a tremendous impact in rural areas in recent years. During the recent launch of the Solar Photovoltaic PV Guide Book by Godwin Msigwa, it was reported that Retired President Benjamin Mkapa said that the government needs to set up strategic plans to boost solar technology by collaborating with the development partners and experts from public and private sectors. In the past, the government has certainly shown its support for this sector, with awareness and demonstration campaigns on the use of solar systems for domestic and industrial use. Indeed, it is anticipated that by 2025, about 800MW should be fed to the national grid from solar power generation located in the central part of the country.

The last two decades have seen an increased focus at a global level, but also here in Tanzania on the use of green energy including wind, hydro and solar.

Unfortunately in this year’s budget speech, there was no mention of the opportunity for solar, which is a green energy that has had a tremendous impact in rural areas in recent years. During the recent launch of the Solar Photovoltaic PV Guide Book by Godwin Msigwa, it was reported that Retired President Benjamin Mkapa said that the government needs to set up strategic plans to boost solar technology by collaborating with the development partners and experts from public and private sectors. In the past, the government has certainly shown its support for this sector, with awareness and demonstration campaigns on the use of solar systems for domestic and industrial use. Indeed, it is anticipated that by 2025, about 800MW should be fed to the national grid from solar power generation located in the central part of the country.

Government support in the past has also been by way of exemption of import taxes (import duty and VAT) on main solar components (panels, batteries, inverters and regulators etc) with an objective to make solar home systems more affordable.

Specific to import duties, prior to July 1, 2014 customs duty exemptions applied to specialized solar powered equipment and accessories including deep cycle batteries which use and / or store solar power. However, from July 1, 2014 the scope of exemption was narrowed to specialized equipment for development and generation of solar and wind energy, including accessories, spare parts and deep cycle batteries which use and / or store solar power (so no longer covering all imported specialized solar powered equipment).

On the VAT side, before July 1, 2015 the VAT Act, 1997 exempted VAT on solar energy system components including panels/modules solar charge controllers, solar inverter, solar batteries, solar pumps, solar refrigerators, solar lights, vacuum tube solar collectors, plastic solar collector, linear inclinators for tracking system, concentrating solar collectors, fresnel lenses, solar cookers, solar water heaters, solar water distillation units, solar cooling system components and crop dryers. But then a more limited exemption was brought in from July 1, , 2015 (by the new VAT Act 2014) only covering the supply of solar panels, modules, solar charge controllers, solar inverter, solar lights, vacuum tube solar collectors and solar battery.

The 2015 VAT Act and 2016 Customs Law amendments respectively have created a challenge on the affordability of the solar equipment as some important items in completing a working solar system have been left out of the scope of exemption. For example no exemption applies to wire/cables, switches and other solar energy system components.

The Tanzania Revenue Authority (TRA) interprets a solar module as limited to something specifically designed for exclusive use for solar energy only and not other sources of energy. In this case, using this definition, appliances such as wires, cables, TVs, radios which are of multiple use or not for exclusive use for solar power but for other source of energy (such as electricity) do not qualify for VAT exemption. Was this the government’s intention in giving exemption to solar modules for the exemption to only cover items to be used exclusively for solar or even other items which are used in solar though can have multiple uses like wire/cables or switches? If this is the case, then why is the exemption denied to radios or TVs that are specifically designed for using solar energy only? If the aim was to give access to equipment that use solar energy to citizens in the rural areas and at an affordable price, then it is important to consider the basic/domestic uses of the solar energy in remote areas i.e. lighting, radios and TVs.

Borrowing a leaf from neighbouring countries like Kenya and Rwanda, their governments promote the use of solar energy by generally exempting VAT on specialized solar equipment and accessories including solar water heater, deep cycles and sealed batteries which exclusively use or store solar power. It is worth mentioning that the scope of exemption in those countries is wider. Against this background, it was disappointing that this budget did not mention amendments to bring our solar energy exemptions in closer alignment with the practices from our neighbouring countries.

The Budget speech mentioned that electricity demand for domestic and industrial uses continues to outpace generation capacity. With a more conducive tax regime, solar energy could perhaps play an even bigger part in solving this capacity constraint.