Value Added Tax (VAT) and its Impact on Uptake of Renewable Energy Products in Nigeria.
The national grid has failed to provide the sustainable and reliable source of electricity supply for domestic and industrial consumers, which is required, to sustain a rapidly growing population and economy. The World Bank reports that though, about 55.4% of Nigeria’s population is connected to the energy grid as at 2020, they are typically without power for about 85% of the time and almost nonexistent in certain areas1. Over the past years, several off-grid power companies have emerged to try and bridge this gap. A number of these entities have typically used renewable energy sources which serves the dual purpose of supplementing the grid shortfall and assisting the country to meet its climate change obligations under the various international agreements. It is therefore important that Government develops policies which support the continued growth of these renewable energy companies (RECs).
Today, the bulk of the market for the RECs are in rural areas where several of them have set up mini-grids or focused the sale of their Solar Home Solutions (SHS). Pricing and affordability, therefore, remains a key issue. One of the key sources of air pollution in urban areas is small fossil generators in use by Small and Medium Scale Enterprises (SMEs). It is important that a pricing model is developed to encourage the transition of these SMEs from the fossil fuel generators to the various solutions provided by the RECs.
It is in view of the above, that the Government moved to exempt the sale of renewable energy equipment from the application of VAT in the VAT (Modification) Order 2021 (“the Order’). However, the jury is out as to the impact of the exemption on the pricing and affordability of the available solutions. We have therefore decided to review the concept of VAT, the provisions of the Order, and its potential impact on the various renewable energy solutions on offer by RECs.