Ethiopia raises customs duty on EV imports

November 15, 2024

From the newsletter

The first country in the world to ban the import of fuel-powered vehicles surprised the mobility sector by adjusting its daring course this week. Ethiopia wants to create a conducive environment for electric vehicles to thrive. Yet the government announced an increase in customs duties on imported EVs from 15% to 20%.

  • This development comes amidst pressure from the IMF for the country to broaden its tax base.

  • Last year, the government set out an ambitious plan to have 500,000 EVs on the road by 2030. Currently, there are apparently 100,000 EVs in use, including passenger and commercial vehicles.

More details

  • The Ethiopian market has been closed to international investors for a long time. Recently, the government adjusted market rules to ensure Ethiopia can attract international capital.

  • The January ban on fuel vehicle importation was one of several bold moves to position Ethiopia on the global stage and attract EV investors.

  • With the ban on fuel vehicles, the government introduced several incentives for EVs, including eliminating VAT, surtax and certain excise taxes on EV imports.

  • To encourage local assembly, a customs duty of only 5% is applied to semi-assembled vehicles, with no additional excise, VAT or surtaxes. EVs that are entirely assembled within Ethiopia receive even greater incentives, being completely exempt from all taxes, including customs duty.

  • The government itself took the lead in providing capital. The city of Addis Ababa invested $15 million in 110 electric buses in 2022.

  • Despite these efforts, the recent increase in customs duty on fully assembled EVs comes amidst concerns that the fuel vehicles ban wasn't well thought out and should have been implemented in phases. 

  • Ethiopia's vehicle ownership rate is one of the lowest globally, with only one vehicle per 100 people.

  • The grid infrastructure remains underdeveloped even in the capital, Addis Ababa, and struggles to support the existing demand.

  • Ethiopia has not invested heavily in local vehicle assembly, though there are nine Ethiopian firms that assemble vehicles from kits. Brands assembled in Ethiopia include Kia, Hyundai, Isuzu, Peugeot and IVECO.

  • Last week, Chinese brand BYD partnered with Inchcape to distribute its range of EVs and hybrid cars in Ethiopia.

Our take

  • This duty increase, while aiming to increase tax revenue, could slow down EV adoption, especially given the already low vehicle ownership rates in Ethiopia. 

  • It is crucial for the government to strike a balance between generating revenue and promoting green technology. The government might need to explore additional incentives to offset the increased cost of EVs.

  • For Ethiopia to truly accelerate EV adoption and reap the economic benefits, the government needs to look at attracting EV manufacturers to set up operations in the country. This would not only generate much-needed jobs but also create a sustainable source of revenue to support the country's economy.