Thu. Apr 25th, 2024

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Game changer for Ethiopia’s automotive industry

A few days ago, the Government of Ethiopia has announced lifting tax on electric cars both locally assembled or imported. This is a major announcement in the automotive industry of Ethiopia.

The Ministry of Finance of Ethiopia announced a decision that will have a significant impact on increasing private automobile users in Ethiopia, which are currently facing severe transportation shortages in major cities such as Addis Ababa, Dire Dawa and Bahir Dar, Hawassa and Adama.

Many middle-income people would be automobile owners if the Ethiopian automotive purchase price was comparable to its neighboring African countries. For many decades, Ethiopia has not been able to do so. The Government of Ethiopia has been imposing the highest tax on imported vehicles – be it new or used.

Contrary to many African countries, Ethiopia’s Government regards automobiles as luxury products.

If someone wants to buy a used car from Ethiopia, which can be purchased for $3,000 in Kenya and Uganda, they will need to pay three to five times the price. The total tax on a $3,000 vehicle can be anywhere from 300 to 500%, depending on how it is calculated.

This means that the same used car that one can buy in Uganda for $3,000 may be purchased in Uganda for $9,000 to $15,000. This was the norm in Ethiopia. Many middle-income people were forbidden from owning an automobile.

As the suffering of the urban poor worsens due to transportation shortages, the Government of Ethiopia started easing taxes on new cars a few decades ago.

Accordingly, Addis Ababa’s streets are being filled with new automobiles. The cheapest, such as Suzuki Desire 2021, cost between 1.4 and 1.5million Birr ($26.5 and $28.3). But still this price for the same car today in the next door Kenya is around $10,000.

Contrary to popular belief, the Government of Ethiopia has increased its policy prohibiting import of used cars older than eight years. However, the total tax on the car remains at 500% of the actual price, making it unaffordable for middle-class Ethiopians. often encourages illicit traders.

The Government has taken some measures to reduce the carbon emissions from pedestrians who are exposed to carbon from decades-old vehicles.

It is also expected that the Government of Ethiopia will spend less hard currency to import fuel in the long-term. Because newer vehicles consume less fuel than older and less efficient automobiles, this is possible.

This decision is not yet a good enough solution for Ethiopia’s middle-class pedestrians to be able to afford an automobile.

It was in this context that the Ministry of Finance of Ethiopia made this week the decision to lift taxes on electric vehicles. This, I believe, is a game-changer.

The new regulation applies.All electric automobiles imported are exempted from taxes, with the exception of 15% for fully assembled cars that are imported and fully assembled, and 5% for import and assembly. All electric automobiles are exempt from VAT (15 Value Added Tax), and 10% surtax

What does this mean in layman’s terms? This means that the price of an electric car, which is currently selling for 1.6 million Birr, can be reduced by at least 40 percent to 960,000 Birr.

This applies to already assembled or 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.

The current cost of a battery for an electric car that can last between 5 and 10 years will drop to around 100,000 Birr, from its current value at 300,000 Birr.

The opening of Ethiopia’s banking sector to foreign investors and the increasing availability of loans for automobiles from local banks, along with the availability of new electric cars at a fraction of a million Birr, will increase the number and investment in this 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 technology and battery technologies are continually improving will also make it more likely that cheaper, yet still durable products will be available on the market in the near future. This is similar to what we saw in the cellphone sector. The Government of Ethiopia has just announced a significant tax reduction on electric cars.

Source: newbusinessethiopia

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By Chala Dandessa

I am Lecturer, Researcher and Freelancer. I am the founder and Editor at ETHIOPIANS TODAY website. If you have any comment use caalaadd2@gmail.com as email contact. Additionally you can contact us through the contact page of www.ethiopianstoday.com.

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