Nigeria’s duty on solar panels seen as punitive, evidence poor fiscal policy

Since January this year, the Nigerian Customs has been demanding payment of 5 percent duty and an additional 5 percent VAT on solar panels imported into the country citing obedience to Federal Government’s fiscal policy, which contradicts the country’s power aspirations.

 

Babatunde Fashola, minister of Power, Works and Housing is implementing the Federal Government’s incremental power policy which basically seeks to utilise power wherever it can be found in whatever form it can be harnessed.

 

In this vein, Nigeria has developed its first public Energy Mix statement that seeks to achieve 30 per cent of renewable energy by 2030, Fashola said during a public lecture at the London School of Economics recently.

 

The minster listed other major hydro-electricity projects, either being aggressively pursued towards completion or imminent commencement, to include the 700MW Zungeru, 40MW Kashimbila, 30MW Gurara, 29 MW Dadin Kowa, all approaching completion, and the 3050 MW Mambilla, whose financing is now under consideration.

 

Pointing out that Government policy and action were stimulating consensus and action towards other sources of cleaner energy like solar, the Minister said that electric energy production capacity has increased from 5,000 MW to 7,000 MW and Distribution has increased from under 3,000 MW to 5,000 MW while work continues to expand the capacities with expected results in the short term.

 

It is therefore curious that the same government will seek to force a tariff on solar panels at a time it is seeking to grow the sector. What is even more incredulous, experts say, is the fact that the policy seems to be punishing the use of solar panels in power generation.

 

“The government must realise that to get to its energy mix targets that it cannot continue to introduce policy changes like the new reclassification on solar panels. This sudden shift which introduces a 10% tax on solar panels has the capacity to erode about 50% market share of the renewable energy sector in six months,” says Ify Malo, who leads the Power for All campaign in Nigeria.

 

Malo further said, “many solar technology providers are groaning about this newly introduced tariff and it certainly does not ease doing business for anyone, enhance the country’s energy access goals or encourage more investment into the decentralised energy sector.”

 

Anthony Anyalogu, head of classification at the Nigerian Customs Service, in a presentation at the Nigerian Energy Forum last week, the Customs Service was only enforcing government fiscal policy, not inventing a new one.

 

Anyalogu, in his presentation, said the tariff was not a new one and agitations against the tariff did not factor in explanatory notes to HS Codes 8501 that explained inclusions and exclusions of the tariff codes.

 

“Photovoltaic generators consist of panels of photocells combined with other apparatus, like storage batteries and electronic controls, voltage regulator, and inverter, among others.

 

“It also covers panels or modules equipped with elements, however simple (for example diodes to control the direction of the current), which supply the power directly to, for example, a motor, an electrolyser etc. As long as these are included, it attracts duty,”

 

“These solar panels are not even manufactured in Nigeria. So, should we not encourage local industries?” he asked.

 

“Furthermore, the relevant exclusion notes from the provisions of the explanatory note, Vol.   5, p – XVI-8541-3 on Heading 8541, which clarifies that, “the Heading does not cover panels or modules equipped with elements, however simple (for example, diodes to control the direction of the current). This implies that such panels are classified under Heading 8501 (which requires duty).”

 

The Nigerian Customs’ position is that only solar panels that are imported into the country without a charge controller, which can only be used as signal, is exempt from import duty.

 

“All importations of solar panels made up of the solar modules, diodes and junction boxes should be classified on the appropriate commodity code of heading 8501 according to the power capacity at 5% duty and 5 percent VAT in tandem with extant ECOWAS Common External Tariff (CET) 2015 – 2019,” said Anyalogu.

 

But this argument is seriously flawed. “If you take the Customs argument to the logical conclusion, it means that if you import solar panels to make them into furniture, they will be duty free. If you import solar panels to generate electricity, then you pay duty,” says Wiebe Boer, CEO of All On, an off-grid impact investment firm.

 

 ISAAC ANYAOGU