Tax incentives are a raft of measures governments provide to a target population or sector. These measures are aimed at spurring sector growth and fostering national economic gains. Further, they encourage local and foreign investment, making a country an attractive business destination.
Regionally, Rwanda has deliberately taken the lead in providing fiscal and non-fiscal incentives to catalyse the uptake of e-mobility.
As early as 2021, the government introduced reduced electricity tariffs for charging, import and excise duty exemption on electric vehicles and their components. Incentives were also extended to the batteries used in e-mobility.
The government also offered free land for the establishment of charging infrastructure. It also gives preference to electric vehicles when sourcing for car rental services. Of importance is the fact that these incentives are provided for the entire industry, not specific players.
This boosts investor confidence and fosters an amicable business environment where companies compete on an even playing field. It is no wonder that successful electric mobility outfits like Ampersand started in Rwanda before branching into other countries.
In Kenya, the Finance Act 2023 set the pace for the e-mobility industry by providing a range of incentives, mainly touching on the motorcycle space. These incentives include VAT and excise duty on the importation of the motorcycles, whether fully built or as a knocked-down kit.
The import duty is at 25percent. Importers only qualify for 10 percent import duty if they do local assembly and source for some parts within the East Africa Community trading zone. Last week, the Court of Appeal in Nairobi nullified the 2023 Finance Act. The court found that the enactment of the law was flawed and unconstitutional. Its fate now lies with the Supreme Court.
As we await the decision of the apex court, it is worth noting that since the enactment of the 2023 Finance Act, there has been growth in the uptake of electric vehicles in Kenya. The largest slice of the pie has been in the motorcycle sector, as most incentives favour this space.
The Electric Mobility Association of Kenya recently published a white paper entitled 'Electrifying Kenya's Transportation Sector', in which it notes that the number of electric motorcycles has grown from 366 in 2022 to 2,557 in 2023.
Many companies have taken advantage of the incentives to make their prices more competitive in the price-sensitive motorcycle sector.
Microfinance companies have devised affordable and attractive loan packages that have boosted their sales. Taxi-hailing services like Bolt and Uber have introduced cheaper electric rides as part of their boda boda services. This has ensured that the end-user has felt the advantages of using e-mobility. All this can be attributed to industry-wide incentives.
The e-mobility industry has created more direct and indirect job opportunities. The increased consumption of electricity has benefited government-owned generation and distribution outfits.
All these gains risk being dampened if recent media reports (Business Daily, July 29, Treasury on the spot over Sh2.6bn tax gift to e-bike firm) surrounding tax incentives granted to one e-mobility company are anything to go by.
The magnitude of exemptions being alluded to creates an environment of unfair competition. These allegations, if proven, will doubt investor confidence in the nascent e-mobility sector and the economy.
The incoming Cabinet Secretary for Finance should thoroughly investigate this matter. Kenyans deserve a clear answer on the alleged exemption of 10,000 motorcycles and 80,000 batteries from import duty, VAT, IDF and RDL levies. It is also expected that the government will craft a sound tax framework that is not reliant on the annual budget rituals.
Going by the aborted Finance Bill 2024 and the Finance Act 2023 lying in abeyance, a much more reliable and robust framework needs to be thought through. The industry requires consistency and predictability to grow and attract investment. A stable tax environment stimulates growth, promotes dynamism, builds innovation, and increases competitiveness.
