While addressing the US-Kenya Business Forum during his recent historical visit to the USA, President William Ruto announced grand plans to waive taxes on the first 100,000 2-and 4-wheeler electric vehicles that will be locally assembled.
While this pronouncement is welcome, its legal framework must be well thoughtout for the benefit of existing assemblers and future new entrants in the sector. Indeed, it is important to note that the assembly of electric motorcycles and buses is an ongoing business in Kenya.
If the proposals outlined in the Finance Bill 2024 are anything to go by, the growth that has defined the e-mobility space in the last few months will fade away. The halcyon days of the e mobility space will be over, and the progressive industry will be consigned to its default settings.
The rapid growth can be attributed to the positive fiscal measures that were introduced by the Finance Act, 2023. Indeed, since the enactment of the law the number of electric vehicles on Kenyan roads has reached a record high.
According to a recently published white paper titled, ‘Electrifying Kenya’s Public Transport’, the number of electric vehicles grew from 796 in 2022 to 4047 in 2023.
The Finance Bill, 2024 intends to claw back some of the tax benefits that the sector has enjoyed. This, if approved, will see an increase in the prices of electric vehicles and their ancillary services like battery swapping. It will make it harder for e mobility players to penetrate the very price-sensitive market.
The Bill, for instance, proposes to introduce an eco levy aimed at making manufacturers or importers of goods pay for the negative environmental impact of the said goods. Included in the list are cells or batteries that fall under Chapter 85 of the EAC Customs Union Common External Tariff. Lithium-ion batteries are the go-to battery chemistry for many e-mobility players.
Imposing a levy of Sh750 per kg on the batteries will increase the landed cost that will have a ripple effect on the product cost to the consumer.
Reintroducing excise duty of 10 percent ad valorem with a minimum specific tax of Sh12952.83 per unit of some electric motorcycles will make it more expensive for new entrants who wish to roll out fully built units as they gauge the market with a view of doing local assembly in the long run.
The proposal to impose 16 percent VAT on lithium-ion batteries will increase the cost of the batteries as well as leasing costs.
Companies that offer battery leasing or battery as a service will also feel the impact. In determining the price of a battery swap a company looks at the cost of the asset (battery) and the recurring revenue it attracts from the charging during its life cycle.
In essence the asset needs to pay for itself and generate income to cover all overheads associated with the service. Consequently, an increase in the asset cost will mean an increase in the swapping or leasing fee charged to users.
While it is important to safeguard our environment, ways exist to track batteries and locate the owners should they be dumped. Most batteries are equipped with Battery Management Systems and IOT cards that are tracked by the asset owners.
This coupled with unique serial numbers and QR codes can provide the basis of a legal framework governing the second life of batteries. This way technology can be used to track the batteries at no extra cost to the end users. Furthermore, the government should encourage investment in recycling plants that will handle the waste professionally.
Excise Duty: The bill proposes to reintroduce Excise Duty of 10 percent ad valorem with a minimum specific tax of Sh12,952.83 per unit of electric motorcycles of HS code 87116000. To get relief from this tax, the motorcycle must be locally assembled. This makes it more expensive for new entrants to the market who wish to roll out fully built units as they gauge the market with a view of doing local assembly in the long run.
More than ever today’s businesses strive to be data driven. Data is used to make decisions that are based on factual evidence as opposed to gut feelings. Indeed, in today’s world data analytics forms the backbone of the organisation.
The use of the internet and its applications is key in the collection and collation of data. Consequently, the cost of the internet, its reliability and accessibility are paramount.
The 2024 Finance Bill intends to increase Excise Duty on internet data from 15-20 percent. The e-mobility space relies on internet data to form a seamless ecosystem between the management platforms, battery charging stations, vehicles, and the consumers.
These quadrants form a circle of data analytics that informs decisions around the location of battery stations and consumer behavior. An increase in mobile data charges will in turn increase the cost of doing business. Further, the consumers of electric motorcycles involved in taxi and last mile delivery businesses will end up paying more to serve their clients through the various platforms. The effect will be a reduction in their disposable income.
VAT: The proposal to impose 16 percent VAT on lithium-ion batteries will increase the cost of the batteries as well as leasing costs. The supply of electric bicycles and Buses of heading 87.02 is set to attract VAT if the proposals sail through Parliament. Furthermore, the bill intends to move the supply of electric motorcycles from Zero Rating to Exempt status.
This means that companies in the e mobility space will not be able to claim VAT on their inputs but will be obligated to sell the vehicles exclusive of VAT. This move will increase the cost of the vehicle and it is unlikely that e-mobility companies will maintain their current prices.
For sustainable transport to flourish there needs to be a concerted effort aimed at making it affordable. Kenya’s green energy potential provides a wonderful opportunity for e mobility space to increase the uptake of electricity especially during off peak periods. The pace set by the 2023 Finance Act must be built upon.
All businesses in the e mobility space from 2,3,4 wheelers to buses, trucks, and charging infrastructure need support to scale and grow the space. This can happen with close consultations between policy makers and all stakeholders along the way.