EVs: Why African govts are reducing tax on eco-friendly cars

A number of African governments are introducing tax cuts and other incentives to boost the e-mobility industry and drive the demand for eco-friendly vehicles

Tunis, Tunisia | BIRD AGENCY | Tunisia has become the latest country to introduce e-mobility incentives as governments across Africa bet on tax breaks and other incentives to increase the roll-out of electric vehicles.

The country’s Finance Act 2023, which came into effect on January 1, states that “customs duties on electric vehicle charging equipment have been reduced to 10% and the value-added tax (VAT) has been reduced to 7%.”

The Tunisian Ministry of Environment projects these incentives will result in the deployment of 50,000 electric cars by 2025, leading to a significant reduction in the importation and consumption of dirty fuels on its roads.

“This is likely to lead to a reduction in oil consumption of 5.9 million barrels, or a reduction in imports of fossil fuels of US $660 million over the period 2020-2030” the ministry said in a statement.

Currently, French oil marketer, TotalEnergies is installing the first network of recharging electric vehicles in 19 service stations in Tunisia. At the same time, German-Tunisian start-up Bako Motors plans to deploy locally-made tricycles and electric bicycles in 2023.

South Africa is also mulling tax incentives and pumping billions of dollars into green energy and e-mobility industries, with a focus on saving its auto exports. Both the UK and Europe – its key markets – have announced a shift to green energy-powered vehicles.

The UK Government said it will introduce a zero-emission vehicle mandate setting targets requiring a percentage of manufacturers’ new cars and van sales to be zero emissions rated, each year from 2024.

Similarly, the European Commission is implementing various regulations with the intention of lowering carbon emissions from motor vehicles by 55 per cent by 2030 and reaching a zero emissions target by 2035.

This means that sales of petrol and diesel motor vehicles will be scaled down and eventually banned in the UK and EU, a move that could jeopardise South Africa’s motor industry.

During the 111th anniversary celebrations of the Africa National Congress, South African President Cyril Ramaphosa said South Africa would develop the productive capacity to participate in global green energy value chains, including green hydrogen production and electric vehicles.

“The ANC directs government to expand incentives to the electric vehicle manufacturing industry to accelerate the transition from the internal combustion engine in our country’s manufacturing sector,” said Ramaphosa.

In May 2021, South Africa’s Department of Transport introduced a new driving tax – the traffic-management levy – that hikes taxes for drivers using petrol and diesel-powered vehicles.

Legal experts at the law firm, Cliffe Dekker Hofmeyr (CDH), said the measure would accelerate the shift to electric vehicles in the market.

“Aside from addressing the current electricity supply shortfall, this will also hopefully assist in boosting South Africa’s electric vehicle market, including the infrastructure needed to increase the roll-out of electric vehicles and charging stations,” said CDH.

South Africa will need to move faster to build local demand for – and supply of – affordable electric vehicles. Vehicle manufacturers, which currently produce internal combustion engine (ICE) vehicles for the country’s local market are already worried about their overseas markets.

“We don’t want our main export markets to say that they are no longer interested in ICEs because of their emission targets, and that they are taking their business elsewhere. We need to remain relevant,” said Mike Mabasa, CEO of the National Association Of Automobile Manufacturers Of South Africa.

South Africa and Morocco are Africa’s largest vehicle manufacturers and exporters and both are heavily dependent on European markets. While Opel and Renault have both announced plans to produce electric cars in Morocco, other African nations are pushing e-mobility as an opportunity to build local vehicle manufacturing capacity and offer more environmentally friendly commuting options.

In April 2022, Rwanda unveiled a wide set of tax breaks to push the adoption of e-vehicles. The East African nation exempted electric cars, spare parts, batteries and charging station equipment from VAT, import and excise duties.

In March 2021, Egypt granted used passenger cars with electric or dual motors a 10 per cent discount on the free on board (FOB; the value at the point of export) value, to expand the importation and use of electric vehicles. Further incentives have followed.

“The number of charging stations across the country is growing, and Egypt is anticipated to have its first domestically built electric vehicle in 2023. The government is incentivizing customers to buy electric vehicles” said research firm Mordor Intelligence in a report on Africa’s electric vehicle market.

The Kenyan government had previously jumped ahead of its peers by halving the import duty for fully electric vehicles (from 20% to 10%) in 2019.

Kenya has also seen state-owned firms – Kenya Power, an electricity distributor, and KenGen, a power generator – begin phasing out fossil fuel-powered vehicles in their own fleets.

All these developments point to a rise in the number of electric vehicles on African roads and Mordor Intelligence projects that Africa’s electric vehicle market value will reach US$21.39 billion by as early as 2027.

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SOURCE: *By Conrad Onyango, bird story agency