EVs set for new taxes and incentives in East Africa

From the newsletter

Kenya has introduced 16% VAT on inputs used to make passenger motor vehicles locally, and on locally assembled tourist vehicles, affecting both fuel and electric vehicles. This is one of several new taxes that EVs in three East African countries will be subjected to as governments aim to raise additional revenue to fund their latest budgets. 

• Raw materials and inputs used to make passenger motor vehicles are currently exempted from VAT in Kenya, which has the biggest EV market in the region. The new tax will raise costs for manufacturers, who will likely pass the extra burden on to buyers.  

• Kenya’s new tax reflects a trend where countries prioritise immediate budget needs at the expense of the EV sector. This could slow down the momentum picked up in recent years. 

More details

• The latest policy proposal by Kenya, contained in its Finance Bill of 2025, has reclassified locally assembled motor vehicles used for transportation of tourists and inputs and raw materials used for manufacture of passenger motor vehicles from exempt to taxable at 16%. This will be a blow to Kenya’s emerging motor vehicle industry and will increase the cost of production.

• It has also reclassified the supply of electric motorcycles, electric bicycles, electric buses, solar and lithium batteries from zero-rated to VAT exempt. This means the companies will not be able to claim input tax from the Kenya Revenue Authority (KRA), raising their production costs.

• Kenya has more than a dozen electric motorcycle companies including Spiro, Zeno, Ampersand, Spiro and Roam, electric bicycle and bus companies such as eBee and BasiGo respectively, and a number of EV battery providers such as ABM (Associated Battery Manufacturers).  

• In Rwanda, hybrid vehicles that were previously exempt from withholding tax are now subject to a withholding tax at 5%. At the same time, hybrid vehicles that were previously exempt from VAT are now subject to VAT at 18%. These additional taxes will make hybrid vehicles more expensive, which will likely slow down their adoption.   

• However, Rwanda has retained exemption from VAT on electric vehicles up to 30 June 2028. Fully electric vehicles enjoy a complete tax exemption in Rwanda, regardless of their age or model. This means they do not pay VAT, withholding tax, or excise duty, helping lower their cost and potentially driving up their sales.  

• Tanzania has granted duty remission at a rate of 0% instead of 25% for one year on lithium-ion electric accumulators used in the assembly or manufacture of electric vehicles and motorcycles. The objective of this measure is to reduce cost of production and encourage local investment in the sector, ensuring availability of the final product at an affordable price in the country.

• Stakeholders in the respective countries have raised concerns over the proposed increases in taxes on EVs and related components. “It is necessary to maintain VAT zero-rating on EVs, batteries, and components to avoid cost increases. The importance of equitable incentives across all EV categories from motorcycles to buses and passenger vehicles cannot be overstated,” said the Electric Mobility Association of Kenya (EMAK) in its submissions to the Kenyan Parliament.  

Our take

• A coordinated East African approach—where countries like Kenya, Rwanda, and Tanzania align their EV tax regimes—could prevent policy fragmentation, reduce investor uncertainty, and create a unified market for EVs and components.

• If zero-rating is off the table, allowing input VAT recovery for exempt EV products (like batteries and components) would ease cost pressures on manufacturers and assemblers, especially SMEs.

• Budget planning should integrate green industrialization targets, ensuring that short-term revenue measures don’t undercut long-term climate and economic ambitions. This could include earmarking a portion of EV-related tax revenue to fund charging infrastructure or local research and development.