Tax incentives promoting Uganda’s solar energy sector

Monday April 15 2019

Joseph Malinga

Joseph Malinga  

By Joseph Malinga

Until the Uganda Solar Energy Association (USEA) made major efforts in the lobbying for tax incentives on solar power generation products, access to solar energy remained elusive for most Ugandans.
With the emergence of tax incentives more Ugandans are now getting connected to home solar systems significantly contributing to national access to energy. Currently, energy access is estimated at 23 per cent with the un-met energy need standing at over 77per cent.

Solar energy is, therefore, an alternative power source, yet many Ugandans still consider it expensive.
The absence of tax incentives on solar generation equipment made the cost of doing solar business extremely high. And for end users, it further meant digging deeper into their pockets.

Uganda’s tax policy, then, provided for tax exemption on selected solar systems like solar panels, but did not cater for other solar products. This kept the cost of doing business albeit a little lower, significantly high, making solar energy out of reach for the rural poor that need it the most.
However, with the formation of USEA in 2016, the organisation embarked on a spirited fight for government to accord its membership tax incentives on all solar systems, a request that the government partly granted.

This decision is seen by many stakeholders as a right step towards promoting solar energy sector and electrifying the rural poor. USEA now boasts of having at least 1.5 million homes connected to solar systems through its membership, an achievement that would otherwise not have been possible without tax incentives.
While the 1.5 million connections is something to celebrate, the figure is far below that of the immediate neighbouring country, Kenya, who is boasting of 3 million connections. Uganda is not unique to these issues. Many countries in sub-Sharan Africa have their citizens immensely entrenched in energy poverty.

The World Energy Council report 2018, identifies energy poverty, electricity prices, energy efficiency and infrastructure are among key challenges facing African countries.
It notes that sub-Saharan Africa is challenged by the world’s lowest level of electricity access (35 per cent overall and only 19 per cent in rural areas) and is home to more than half of the world’s population without access (632 million people or 53.5 per cent).
This grim situation is what USEA in partnership with development stakeholders are hoping to address, according to USEA’s chief executive officer, Joyce Nkuyahaga. From the look of things, there is steady progress towards eradicating energy poverty among the populations, Nkuyahaga, observes.

The tax incentives have not only increased the level of access to solar energy as services increasingly become affordable, it has also supported membership recruitment. Nkuyahaga says tax exemption only applies to companies who are signed up with USEA.
A company that wishes to benefit must show proof of membership to Uganda Revenue Authority (URA) and proof that products are to be used in solar generation.
“Normally, we have to officially introduce the person/company to URA before they can be tax exempted,” she says.
This requirement is driving many companies dealing in solar energy services to register with the association, growing the membership to more than 130 companies.

Whereas access to solar energy is becoming more tangible, the sector is nervous about the quality of solar energy services currently being provided in the country. The issue of counterfeit products on Ugandan market is real and it is something all stakeholders not only need to ponder about, but find remedies as quick as possible.

Mr Malinga is communications consultant for USEA,