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Why African Governments Are Lowering Tax on Eco-Friendly Vehicles

By Yemi Olakitan

Several African governments are implementing tax breaks and other incentives to promote e-mobility and increase demand for environmentally friendly automobiles.

As governments throughout Africa gamble on tax exemptions and other incentives to encourage the roll-out of electric vehicles, Tunisia has become the most recent nation to implement e-mobility incentives.

According to the nation’s Finance Act 2023, which became operative on January 1st, “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, these incentives will lead to the deployment of 50,000 electric vehicles by 2025, resulting in a considerable decrease in the country’s reliance on the importation and use of polluting fuels.

The ministry stated in a statement that 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 of 2020–2030.”

The first network of electric vehicle charging stations is now being installed by French oil marketer TotalEnergies in 19 service stations around Tunisia.

In addition, the German-Tunisian start-up Bako Motors intends to introduce tricycles and electric bicycles built in the country in 2023.

In order to save its auto exports, South Africa is also considering tax incentives and investing billions of dollars in the green energy and e-mobility sectors. Its two most important markets, the UK and Europe, have both declared a transition to green energy-powered automobiles.

The UK government said that starting in 2024, it will enact a mandate mandating manufacturers to sell a certain proportion of new vehicles and vans that are zero emissions rated.

Similar to this, the European Commision is putting into effect a number of measures in an effort to reduce carbon emissions from automobiles by 55% by 2030 and achieve a zero emissions target by 2035.

As a result, sales of gasoline and diesel-powered cars will be reduced and finally outlawed in the UK and the EU, endangering South Africa’s auto industry.

Cyril Ramaphosa, the president of South Africa, declared that his country would create the productive capacity to take part in global green energy value chains, such as green hydrogen production and electric car adoption, during the 111th anniversary celebrations of the Africa National Congress.

In order to hasten the switch from internal combustion engines in our nation’s manufacturing sector, the ANC urges the government to increase incentives to the electric car manufacturing business, according to Ramaphosa.

The traffic-management levy, a new driving fee that South Africa’s Department of Transport imposed in May 2021, raises taxes for motorists who operate gasoline- and diesel-powered vehicles.

The move, according to legal professionals at the law firm Cliffe Dekker Hofmeyr (CDH), would hasten the market’s transition to electric vehicles.

In addition to addressing the present electrical supply shortage, CDH added that the project would help build the infrastructure necessary to accelerate the roll-out of electric vehicles and charging stations in South Africa.

In order to increase local demand for and supply of reasonably priced electric vehicles, South Africa will need to act more quickly.

Manufacturers of internal combustion engine (ICE) vehicles, which are currently produced for the domestic market alone, are already concerned about their international markets.

“We don’t want to hear from our top export markets that they are no longer interested in ICEs due to their emission requirements and that they are doing business with competitors instead.

The CEO of the National Association of Automobile Manufacturers of South Africa, Mike Mabasa, stated that we must continue to be relevant.

The main car producers and exporters in Africa are South Africa and Morocco, both of which rely significantly on European markets.

Other African countries are promoting e-mobility as a chance to develop domestic vehicle manufacturing capability and provide more environmentally friendly commuting options.

While Opel and Renault have both declared ambitions to produce electric cars in Morocco, other African countries are supporting e-mobility.

Rwanda unveiled a comprehensive package of tax benefits in April 2022 to encourage the use of electric vehicles. The country in East Africa waived import, excise, and VAT taxes on electric vehicles, accessories, batteries, and equipment for charging stations.

To encourage the importation and usage of electric vehicles, Egypt began offering a 10% reduction on the free on board (FOB; the value at the point of export) value of old passenger cars with electric or dual motors in March 2021. There have since been additional rewards.

Charging stations are becoming more numerous nationwide, and Egypt is expected to have its first domestically produced electric vehicle in 2023.

According to a study by research firm Mordor Intelligence on the electric car market in Africa, the government is encouraging consumers to purchase electric vehicles.

By lowering the import tax on fully electric vehicles (from 20% to 10%) in 2019, the Kenyan government has previously surpassed its contemporaries.

State-owned businesses in Kenya, including the energy distributor Kenya Power and the power generator KenGen, have started phasing out fossil fuel-powered vehicles from their own fleets.

The market value of electric vehicles in Africa is expected to reach US$21.39 billion by as early as 2027, according to a projection by Mordor Intelligence. All of these factors indicate to an increase in the number of electric vehicles on African roads.

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