Funguo Consultants

Green Transition & Carbon Benefits: Tax Advantages

Green Transition: Green transition refers to the process of shifting from resource-intensive and environmentally harmful practices to sustainable, low-carbon, and environmentally-friendly alternatives. It involves adopting cleaner and more efficient technologies, reducing carbon emissions, promoting renewable energy sources, enhancing resource efficiency, and embracing eco-friendly practices to mitigate the impacts of climate change and ensure long-term environmental sustainability.

Tax Benefits and Exemptions for Green Transition:

The Business Daily article titled “Carbon tax as a green transition driver” outlines various tax benefits and exemptions aimed at promoting green transition and combating climate change. These measures include reduced corporate tax rates, income tax exemptions, Value Added Tax (VAT) exemptions, and incentives for electric vehicles and renewable energy. Here’s a strategy for taking advantage of these benefits:

1. Reduced Corporate Tax Rate for Carbon Market Exchange: If your company is involved in operating a carbon market exchange or emission trading system certified by the Nairobi International Financial Centre (NIFC) Authority, you can benefit from a reduced corporate tax rate of 15 percent. To take advantage of this incentive, consider exploring opportunities in carbon trading, emissions reduction projects, or related financial services. Ensure that your operations meet the certification criteria set by the NIFC.
2. Income Tax Exemption for Energy Sector Investments: If you’re considering investments in the energy sector, particularly in solar, wind, and geothermal energy, you can benefit from an income tax exemption on interest on foreign debt. This incentive encourages investments in renewable energy projects. Engage with financial institutions to explore financing options that align with this exemption. Ensure compliance with the regulations to qualify for the exemption.
3. VAT and Custom Taxes Exemption for Solar Equipment: If your business involves the import or supply of qualifying solar equipment, you can benefit from VAT and custom taxes exemption. This exemption reduces the upfront costs of acquiring solar equipment, making renewable energy solutions more financially viable. Explore partnerships with suppliers and distributors of qualifying solar equipment and ensure compliance with import regulations.
4. Zero-Rated Supply of Electric Bicycles and Electric Buses: The Finance Act 2023 has zero-rated the supply of certain electric bicycles and electric buses. This makes electric mobility solutions more affordable and encourages their adoption. If you’re involved in the electric vehicle industry, capitalize on this opportunity by offering electric bicycles and buses that qualify for the zero-rated supply. Promote the environmental and financial benefits of electric mobility.
5. Voluntary Carbon Market Exchange: With the growing interest in the voluntary carbon market exchange, explore the potential of participating in carbon credit auctions. If your business engages in activities that reduce carbon emissions, such as reforestation or emissions reduction projects, consider generating carbon credits that can be auctioned in the market. Engage with carbon credit brokers and marketplaces to navigate the process effectively.

READ MORE: How To Use Guarantees For Risk Management

Strategy for Taking Advantage of Carbon Benefits:

1. Assessment and Planning: Assess your business operations to identify areas where you can benefit from the outlined tax incentives and exemptions. Determine which sectors of green transition align with your expertise and goals. Develop a comprehensive plan that outlines how you will leverage these benefits to drive sustainability initiatives.
2. Engagement with Regulatory Authorities: Stay informed about the latest updates from regulatory authorities, such as the NIFC Authority and tax agencies. Ensure that your business meets the criteria for certification and compliance to access the reduced corporate tax rate and other incentives.
3. Collaboration and Partnerships: Forge partnerships with suppliers, distributors, and stakeholders in the renewable energy and electric mobility sectors. Collaborate with entities that offer qualifying solar equipment, electric bicycles, and electric buses. Build relationships with carbon credit brokers for participation in carbon credit auctions.
4. Investment and Implementation: Allocate resources and investments to capitalize on the identified opportunities. Implement renewable energy projects, electric mobility solutions, emissions reduction initiatives, and other activities that align with the outlined benefits.
5. Record Keeping and Reporting: Maintain accurate records of your activities related to green transition and the utilization of tax benefits and exemptions. Prepare necessary documentation for tax reporting and compliance purposes.
6. Advocacy and Public Relations: Showcase your commitment to green transition and sustainability through advocacy and public relations efforts. Highlight your participation in carbon credit auctions, renewable energy projects, and electric mobility initiatives. Communicate the environmental and social impact of your actions.
7. Continuous Monitoring and Adaptation: Continuously monitor the effectiveness of your strategies and adapt them based on changing regulations, market dynamics, and business goals. Stay proactive in exploring new opportunities that emerge in the green transition landscape.

By strategically leveraging the available tax benefits and exemptions, your business can contribute to the green transition while also enhancing its financial performance and reputation as a responsible corporate citizen.