WEEKEND READING – By Andualem Sisay Gessesse – A few days ago, the Government of Ethiopia has announced lifting tax on electric cars both locally assembled or imported. This major news of the week is taken as game changer in the automotive industry of Ethiopia.
The decision announced by the Ministry of Finance of Ethiopia will definitely has great impact in boosting the number of private automotive users who are currently suffering from severe transportation shortage in major cities like the capital Addis Ababa, Dire Dawa, Bahir Dar, Hawassa, Adama and the like.
Has the purchasing price of automotive in Ethiopia been same or close to that of its neighboring African countries, many middle-income people would have been automobile owners. Unfortunately, that was not the case in Ethiopia for the past many decades. The Government of Ethiopia has been imposing the highest tax on imported vehicles – be it new or used.
Unlike many African countries, the Government of Ethiopia has been and still considers automobiles as luxury products.
As a result, if someone wants to buy a used car in Ethiopia, which can be sold for $3,000 in Kenya or Uganda, he or she has to spend often three or five times that price for the same car. This is because when calculated the total tax for a $3,000 car can go from 300 to 500 percent.
That means the same used car which one can buy for $3,000 in Uganda can be sold $9,000 to $15,000. This was the norm in Ethiopia, which has forbidden many middle-income people from owning an automotive.
Meanwhile as the suffering of the people in metropolitans gets severe as a result of transportation shortage, a few years ago the Government of Ethiopia has began easing taxes on new automobiles.
As a result, the streets of Addis Ababa and other major towns are now being filled with new automobiles with the cheapest ones such as Suzuki Desire 2021 costing the final consumer between 1.4 to 1.5 million Birr ($26.5 to $28.3) at the moment. But still this price for the same car today in the next door Kenya is around $10,000.
On the contrary, the Government of Ethiopia has tightened its policy banning import of over eight years old used cars while the total tax remains as high as 500% of the actual cost of the car, which is unaffordable for the middle-class Ethiopians and often encourages illicit traders.
This measure by the Government has at least partly relieved the pedestrians from inhaling carbon coming from decades-old automobiles.
In addition, in the long run it is also expected to reduce the hard currency spending of the Government of Ethiopia to import fuel. This is because new automotive take less fuel than the old and rundown automobiles.
Meanwhile this decision is still far from serving the middle-class pedestrians in Ethiopia to have access to affordable automobile.
It is in the middle of this situation that the decision of the Ministry of Finance of Ethiopia came this week lifting taxes on electric cars, which I and many people believe to be a game changer.
According to the new regulation, all electric automobiles imported are free from taxes except 15 percent for a fully assembled and imported, and 5% to imported and assembled. And all electric automobiles are also free from 15 Value Added Tax (VAT), 10% surtax.
What does that mean in a layman terms? It means the smallest electric car now being sold for 1.6 million Birr can be at least down by 40 percent to 960,000 Birr.
This is for already assembled and imported cars. For those who import and assemble the price can even go down by around 60% to 640,000 Birr, according to my discussions with a manager of one of the electric cars’ importer companies in Ethiopia.
And the current cost of battery of electric car, which can serve between 5 to 10 years will be down to around 100,000 Birr from its current value of about 300,000 Birr.
With the opening of the banking sector for foreign investors in Ethiopia and the growing availability of loans for automobiles by the local banks along with availability of new electric cars for less than one million Birr, will definitely increase the number of automotive owners and investments in the sector.
And also, let’s not forget the fact that Ethiopia is at the moment hugely investing in renewable energy. That means in the long term, the decision will drastically cut Ethiopia’s hard currency spending on importing fuel.
The fact that electric car and battery technologies hare being improved frequently is also likely to bring cheaper and yet durable products to the market within the coming few years just like what we have witnessed in the cellphone industry. That is why we are saying the latest decision of the Government of Ethiopia to cut tax on electric cars is a game changer.