Tax incentive plan to spur green economy

National Treasury. FILE PHOTO | NMG 

By EDWARD MUNGAI

Summary

• Amid an overcast economy, there is a bright spot promising to unleash a wave of clean transport technologies, green financing and sustainable industrial parks in Kenya.
• Even with attention glued to the pandemic, National Treasury officials have been preparing a policy framework to zero-rate tax on electric vehicles, float Kenya’s first sovereign green bond and create green economic zones.
• This is a commendable approach to Kenya’s sustainable development agenda and will ignite more investments in ecofriendly technologies and drive green growth.

Amid an overcast economy, there is a bright spot promising to unleash a wave of clean transport technologies, green financing and sustainable industrial parks in Kenya.

Even with attention glued to the pandemic, National Treasury officials have been preparing a policy framework to zero-rate tax on electric vehicles, float Kenya’s first sovereign green bond and create green economic zones.

This is a commendable approach to Kenya’s sustainable development agenda and will ignite more investments in ecofriendly technologies and drive green growth. There is also the jobs aspect.

If implemented, electric vehicles, motorcycles and tuk tuks would no longer be charged value added tax (VAT) in a programme supported by the Green Climate Fund.

The upshot would be a significant drop in costs, enabling the local market to scale by incentivising investors and making e-mobility affordable.

This is set to offer a golden window through which the country transitions to cleaner transportation given that 98 percent of vehicles in Kenya currently run on fossil fuels – petrol and diesel. The expected shift also bodes well for the country’s future forex reserves with a possible drop in fuel bill. Petroleum accounts for over a fifth of Kenya’s import bill.

Studies show commuters in major towns across the country to be inhaling poisonous emissions from millions of tailpipes that lack catalytic converters, especially with matatus that are notorious for engine idling.

While Kenya has performed exceptionally well in greening its electricity generation mix (over 80 percent renewable), the same cannot be said for its transport sector. That is precisely why the formulation of the fiscal incentive to encourage green mobility is long overdue. Transport was clearly the missing link in the country’s green drive agenda.

Besides the tax incentive, the National Treasury is preparing a policy framework for creation of green special economic zones, which will provide favourable conditions for sustainable businesses to flourish.

Again, this is a giant step forward in the country’s march towards achieving the United Nations sustainable development goals (SDGs) with economic, social and environmental considerations.

If implemented, the green hubs are earmarked to host assembly lines for electric cars, solar power systems, research centres and other more ecofriendly technologies. This will elevate the country’s profile as a green technology hotbed and add momentum to its quest of evolving into an industrialised state with better standards of living.

Kenya is already recognised globally for geothermal energy and is ranked eighth largest producer of steam power. With the proposed industrial hub dedicated to ecofriendly technologies, it will further lift the country’s fortunes and stature, again putting it on the global map.

At the same time, the special zones will be home to low-carbon industrial clusters with sustainable operations, including a circular economy (reusing and recycling waste) and renewable energy use.

Besides expanding Kenya’s industrial base and boosting jobs, the rise of sustainable zones is seen to offer the market the shortest path towards achieving an organised circular economy where no resource goes to waste.

While in the past pressure was on manufacturers to better manage their waste disposal, nowadays the society expects them to a go a step further and give the waste a new lease of life through innovation. The bar has clearly been raised and consumers are demanding more in order to perceive and as socially and environmentally responsible.

Lastly, on the radar of the Treasury honchos is a sovereign green bond whose proceeds are earmarked to finance green transport infrastructure, electric vehicles and systems in Kenya. First announced in 2016, the maiden green financing facility has suffered delays and it’s only now that the government has revived plans.

This time around, Treasury officials should keep their word and move with speed to make up for the time lost in what would open a new public fundraising avenue for green projects.

While incentives are good, studies indicate that sometimes sticks work just well where carrots fail.

It’s probably for this reason that the Treasury is also moving to introduce a green tax on polluting vehicles. It will be implemented in form of a feebate (fee/rebate) where buyers of environmentally friendly cars such as electric vehicles alongside newer brands that pollute less would be offered rebates. On the other hand, owners of cars with carbon emissions in excess of a set limit will be penalised under the ‘polluter pays’ principle.

Kenya’s vehicles on average emit 181 grammes of carbon dioxide per kilometre (gCO2/km), above the 158gCO2/km benchmark recommended by the UN Environment (Unep).

It is my hope that the above action plans wouldn’t be left to gather dust on the shelves, as have similar noble ones drafted previously.