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In recognition of the significant role renewable energy sources especially PV can play on rural communities living away from Tanzania’s electricity grid, the country’s legislatures have passed a bill to exempt solar and wind energy equipment from Value added Tax (VAT).

The bill passed by parliament in February 2005 also removes other duties on PV system components with effect from July 2005 making the legislation decision a success story to the Transformation of the Rural Photovoltaic (PV) Market project.

The parliament’s resolve comes out of concerted efforts made by the Project in collaboration with other renewable energy stakeholders to accelerate the wide dissemination of PV in rural areas.

The project has carried out several awareness raising interventions for decision makers including members of parliament on the role of PV technology for off-grid community developments, to enable them attain proper knowledge on the subject before they reached their legislative verdict on the bill.

As a result the legislatures have realized the essence and usefulness of environmental friendly renewable energy including PV technologies and acted in favor of the livelihoods of the massive rural families who are currently using hazardous fossil fuel systems.

One of the PV powered video show, during awareness raising at public places,
Misasi Market in Kwimba district, Mwanza, TANZANIA

Impact:

Following the waiver of VAT taxes and duties on PV technologies, various impacts have been experienced and others are forecasted on the current PV prices. These include;

Reduction in prices for PV system components ranging from 20% to 30%.
The reduction in prices is expected to make PV systems more affordable and within the reach of middle and high-income segments of the population.
As reduction of price increases affordability and demand of PV systems, there is a possibility of further price decrease due to increased competition as more PV dealers may start up business.
A typical Solar Home System (SHS) of 10-50Wp will directly replace roughly 0.15-0.30 tons of CO2 per year through fuel (kerosene) substitution. More installed PV system means more CO2 reduction.

Initiatives:

The tax reduction initiatives have primarily taken into account an environmental conservation role which PV systems play. But a major constraint to that effect has been higher costs of energy supplied by renewable energy sources especially PV than those of conventional fossil fuel systems.

The Project found there was need to look at the pricing of renewable energy systems in order to achieve a fair pricing structure between PV technology and the competing conventional energy sources. This would eventually lead to fair price competition of renewable energy systems with the other options and therefore increase use of PV technologies in rural areas.

Why did the Project initiate the removal of taxes and duties on PV components? Facts and figures ascertain that the majority of Tanzanians about 75% live in rural areas but without grid connection.

They depend on environment unfriendly energy sources, especially kerosene for lighting, to meet their basic energy needs which can be substituted by PV systems. Unfortunately they have little income and low purchasing powers to enable them acquire qualitative and clean energy.

The duties and taxes which were imposed on the alternative clean sources of energy increased their prices more beyond the range of their affordability. As result they were not likely to escape from the scourge of respiratory systems due to prolonged exposure to kerosene smokes.

As electricity is a factor determining living standards of the community, that automatically lead to young generation migrating to towns.
Fossil fuels such as kerosene are subsidized by the government which means if any action was not taken, PV would not likely to penetrate the rural market where justification for its need exists more than that of kerosene.

After all low electricity consumers (< 50Kwh per month) in towns enjoy subsidized electricity tariffs although their subsidized units of electricity are far higher than what a typical rural household needs or what solar system would be required to offer to such households. This means that the rural households are not fairly treated as the town dwellers.

In order to achieve the underlined initiatives several interventions were undertaken to convince decision makers remove the tax and duty barriers.

The entry point was the National Assembly where the Project conducted the following activities to create awareness and persuade decision makers to look into Tax and duty removal on renewable energy technologies:

Awareness of decision makers: On 29th September 2004 the project organized a one day seminar for members of the Parliamentary Industrial and Trade committee. The seminar was conducted at Karimjee hall in Dar Es Salaam and its objectives were to create awareness to the decision makers on the role of PV for community development and therefore the need for taxes and duties removal on the technology equipment. This was done in collaboration with Tanzania Solar Energy Associations (TASEA) which caters for interests of PV industry stakeholders.
Tax waiver proposal on solar energy equipment. In collaboration with TASEA, the proposal with justification of taxes and import duties removal on renewable energy equipment was presented. PV stakeholders shared discussions with Members of Parliament who categorically came into full agreement of the PV role in rural electrification efforts.
PV Study tour in Kenya. In order to practically see what was deliberated during the seminar, the project organized a three-day study tour for decision makers in Kenya where PV commercial market is well developed due to the indirect fiscal incentives. The tour took place from 7th to 11th December 2004 and took on board members of Parliament, officials from the Ministries of Energy and minerals, Industry and Trade, and Finance (planning section), UNDP and RAS office in Mwanza. The tour gave an opportunity to the decision makers to get the experience of market development in Kenya.
Energy equipment and service pricing structure study. The project initiated a study on energy policy, pricing of energy equipment and services in order to propose how the government can ensure consistency in pricing of PV systems with other energy sources. The study evaluated the roles of taxes and other costs to the final consumer energy prices. The recommendations were clear that PV systems needed exemption from duties and Taxes in order to compete with conventional energy sources.

Challenges:

Following are some of the challenges facing the project in its bid to remove barriers to the wide-scale utilization of PV to meet the basic electricity needs of individual households in terms of lighting and power for domestic appliances:

Recent improvement of efficiency in electronics industry has resulted to low wastage of silicon and therefore scarcity of silicon for PV production. In May 2005, the world price of PV per Wp increased from $3.6 up to $4.5.The impact of price VAT removal might not therefore be immediately noticed. However, this is a temporary problem that might last for a year as more silicon industries have been set up to fill the silicon demand gap.
With price decrease due to VAT exemption, still the low income households are not likely to afford PV systems. The middle and high income level are likely to afford the PV systems prices on wide scale with PV financing mechanism in place. The lowest income households will need other direct subsidies whose administration requires a well established energy regulatory authority in place. This role will obviously be taken up by the Rural Energy Agency (REA) and Rural Energy Fund (REF) whose act of establishment was also passed by the parliament in February 2005.
The East Africa Community common tariffs became effective in January 2005 and in July 2005 import duties to PV system components were reduced from the rates of 5 - 25% to the current rates of 0% ( PV modules were already exempted from import duty before).