Kenya’s E-Mobility Sector Faces New Challenges with Proposed EV Tax

Stakeholders in Kenya's Electric Vehicle Industry Call for Reevaluation of Tax Changes

The government of Kenya is considering enacting additional tariffs on electric motorbikes, e-buses, and lithium-ion batteries, which has sparked a major controversy within the EV industry. This proposal is a component of the larger Finance Bill 2024, which is presently available for public review and comment until July 1, 2024, when it is expected to become law.

The Electric Mobility Association of Kenya (EMAK) and other businesses that support e-mobility, such as BasiGo Kenya, have voiced major concerns regarding these planned tax adjustments. They contend that such actions could impede the expansion of a sector that has made substantial progress in cutting emissions, consuming less fossil fuel, and drawing large investment.

BasiGo and other EMAK members presented their case to the Finance and Budget Committee during a recent meeting, highlighting the necessity of policies that would help, not hurt, the rapidly expanding e-mobility industry. According to BasiGo, “the e-mobility industry has saved over one million liters of fossil fuels and attracted over $100 million in investment in just one year.” The company also noted that these green initiatives have reduced customer transportation expenses by 30% to 40%.

The Energy and Petroleum Regulatory Authority (EPRA) reported a record registration of 2,694 new EVs between July and December 2023, bringing the total to 3,753. This indicates the significant influence of the EV business in Kenya. This industry’s potential to lead in low-cost, low-carbon transportation is highlighted by its quick expansion, a goal that is endorsed by BasiGo’s participation in high-level discussions, including a private roundtable with US President Joe Biden during Kenyan President William Ruto’s state visit to the United States.

However, the suggested financial measures could potentially reverse this encouraging improvement. The Finance Bill 2023 had previously provided the e-mobility industry with a number of incentives, including zero-rating VAT on lithium-ion batteries, electric motorbikes, and e-buses. By imposing the regular 16% VAT rate, the new bill aims at repealing these benefits, which would drive up the price of electric cars considerably.

The industry as a whole may be impacted by this adjustment. Electric car producers, assemblers, and retailers would no longer be eligible to claim input VAT on these goods. As a result of businesses having to pass on these higher expenses, EMAK claims that customers would ultimately pay higher prices for electric bikes and other EV items.

Concerns over the broader consequences of eliminating these incentives were also expressed by the industry association. A move like this may discourage new investments in the industry, which would be counter to the government’s pledges to mitigate climate change and support sustainable energy solutions. The planned tax changes, according to EMAK, would impede Kenya’s EV industry’s expansion and adoption in addition to possibly discouraging foreign direct investment, which has been pouring into the nation due to the advantageous tax climate.

Some government officials are still doubtful about the real advantages of these incentives in spite of these obstacles. Committee Chairperson MP Kuria Kimani said that many Kenyans still cannot afford electric automobiles or motorcycles, even with the prior tax cuts, indicating that the incentives have not effectively converted into broader accessibility.

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