Deliberate tax incentives to boost e-mobility uptake

Tax incentives are a set of measures provided by governments to encourage growth in specific sectors or populations. These incentives aim to stimulate sector development and enhance national economic benefits, while also attracting both local and foreign investment, making a country a more appealing business destination.

In the region, Rwanda has proactively led the charge in offering fiscal and non-fiscal incentives to boost the adoption of e-mobility. Starting in 2021, the Rwandan government introduced lower electricity rates for charging electric vehicles, exemptions from import and excise duties on electric vehicles and their components, and incentives for the batteries used in e-mobility.

Additionally, Rwanda has provided free land for the establishment of charging infrastructure and prioritizes electric vehicles when sourcing car rental services. These incentives are available to the entire industry, not just individual companies, which helps build investor confidence and promotes a fair business environment. This supportive approach has allowed successful electric mobility ventures like Ampersand to start in Rwanda before expanding to other countries.

In Kenya, the Finance Act 2023 initially set the stage for the e-mobility sector by offering various incentives, particularly for motorcycles. These included VAT and excise duty exemptions on imported motorcycles, whether fully assembled or as kits. However, the Court of Appeal recently invalidated the 2023 Finance Act, citing constitutional issues. The Supreme Court will now decide its fate.

Despite this legal uncertainty, the 2023 Finance Act has spurred growth in electric vehicle adoption in Kenya, particularly in the motorcycle sector, where most incentives apply. The Electric Mobility Association of Kenya reported that the number of electric motorcycles increased from 366 in 2022 to 2,557 in 2023. Many companies have leveraged these incentives to make their prices more competitive, and microfinance institutions have offered attractive loan packages. Ride-hailing services like Bolt and Uber have introduced more affordable electric options, benefiting end-users and contributing to the industry’s growth.

The e-mobility sector has generated direct and indirect job opportunities and increased electricity consumption, benefiting government-owned utilities. However, recent concerns about potential tax exemptions granted to a single e-mobility company could undermine these gains. Reports suggest that the government might have exempted 10,000 motorcycles and 80,000 batteries from various duties, raising questions about fairness and competition.

The new Cabinet Secretary for Finance should investigate these allegations thoroughly. Kenyans need clarity on the reported exemptions and a stable, predictable tax framework to support the e-mobility industry. Consistency in tax policy is crucial for fostering growth, innovation, and competitiveness.