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{
"id": 1554329,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1554329/?format=api",
"text_counter": 183,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "intention of protecting and promoting local manufacturing. However, it was later observed that the intended objective of the amendment was not achieved as the local industry still does not possess enough capacity to manufacture enough transformers to meet the country’s demand. Secondly, the entities classified as local manufacturers are, in reality, more of assemblers than manufacturers of all the units of a transformer. Kenya operates under the East African Common Custom External Tariff Regime as a member State of the East African Community (EAC). Under this regime, fully assembled transformers and their parts fall under the same tariff code. Consequently, the imported parts required for local assembly are also subjected to 25 per cent excise duty. This has led to a general increase in the cost of transformers across the board rather than reducing the cost of locally assembled units as originally intended. To explain in simple language, EAC tariffs, the ones we call harmonised system (HS) codes, whether for transformers or single units, are the same. By subjecting imported transformers to a 25 per cent Excise Duty meant even transformers assembled in Kenya were subject to the same excise duty. As a result, whether you manufacture transformers locally or import them, the unintended consequence of the amendment is that both would attract 25 per cent excise duty. This is the anomaly we seek to correct. Electricity penetration in Kenya is reported to be at around 78 per cent. This reflects both grid and off-grid solutions such as solar home systems. However, despite this impressive penetration rate, a substantial population is still not connected to the national grid. That is why government initiatives such as the Last Mile Connectivity and investments in renewable energy sources such as geothermal, hydro and solar are very crucial. For the Last Mile Connectivity to succeed, the cost of connection must be reduced. The cost of a transformer is therefore very key and essential. Transformers are essential components in the transmission and distribution of electricity. Every customer connected to a national grid relies on a transformer to receive the correct voltage and frequency of power. When a customer applies for electricity, they are either connected to an existing transformer or must fund the installation of a new one. The introduction of 25 per cent excise duty on transformers, as per the Tax Laws (Amendment) Act, 2024, has led to a direct impact of a 25 per cent increase in the cost of electricity. Many people in this House have witnessed two things. You may have a project somewhere, apply for power connectivity, and are given an invoice by Kenya Power for over Ksh1 million for a transformer. The other greater problem we have, even in our constituencies, is that transformers are connected to constituents only for them to be recalled for being faulty. You launch an electricity project and assure the people that they will have electricity. But a few days later, the transformer is faulty, and it takes so long to replace it. This amendment will make replacement easier. There is a probability that all transformers built in the country, just like any other product, could be faulty. When a fault occurs and the transformer was imported from China or India, it will probably have to be shipped back to that country. Alternatively, the particular faulty component will need to be imported again. When a transformer is locally assembled, it will be quicker to replace any faulty part. Second is the impact on electricity tariffs. Electricity pricing is regulated by the Energy and Petroleum Regulatory Authority (EPRA). It includes costs associated with generation, transmission, distribution and maintenance. As vital assets in the electricity network, transformers require regular replacement due to faults, wear and tear or vandalism. By increasing the cost of transformers, the 25 per cent excise duty raises the overall maintenance costs, which are ultimately transferred to consumers through higher tariffs. Third is the availability of transformers for use across the country. Kenya Power typically procures about 4,000 transformers annually, of which 3,200 are for replacing worn- The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
}