Kenya lowers tax on electric three-wheelers

From the newsletter

The Kenyan government is seeking to lower taxes on locally-made electric three-wheelers. Electric three-wheelers that are made in the country will not be subject to the 16% Value Added Tax (VAT). To qualify for this tax waiver, more than 50% of the value of the vehicle before profit must be made using locally-made components.  

• Kenya has published The Tax Procedures (Unassembled Motor Vehicles, and Trailers) (Amendment) Regulations, 2024 for the public to give their input before being gazetted. The regulations have included electric cars, two-wheelers, three-wheelers and trailers made locally to enjoy lower taxes. 

• The country currently exempts both electric and diesel-powered vehicles that are made in the country from the 16% Value Added Tax (VAT) if they can achieve a local content of 30%. They can also enjoy an import duty waiver of 25% and excise duty waiver of 20% on imported completely-knocked-down (CKD) parts. 

More details

• Three-wheelers are the smallest vehicle segment in Kenya, lagging way behind cars, motorcycles and bicycles. However, the number of three-wheelers in the country is growing. There were 5,760 three-wheelers in the country in 2023, marking a significant increase from 4,001 in the previous year.

• The share of electric three-wheelers however remains tiny. There were 39 registered electric three-wheelers registered in Kenya in 2023, a growth of just 4 units from 35 in 2021. It translates to just 0.6% of the three-wheelers in the country. This is also way lower than electric motorcycles (2,557) and electric bicycles (1,353) that were registered during the same period.

• The market for three-wheelers in Kenya is mostly in urban areas. They often carry between 3-5 passengers at a time. They are popular for offering commuters cheap travel over short distances that are uneconomical for cars, vans and buses. They are also used to larger loads of cargo that a motorcycle cannot handle.

• In Kenya, the primary manufacturer of three-wheelers is Car & General, which primarily distributes Piaggio brand three-wheelers. The company has been a pioneer in the Kenyan three-wheeler market, even introducing electric three-wheelers in partnership with Piaggio Vehicles Pvt Ltd (PVPL).

• Car & General’s passenger electric three-wheelers have a range of 145 km on a single charge, while the cargo electric three-wheeler can go for 115 km. Compared to ICE three-wheelers, the electric ones come with advanced features to give drivers better navigation and allow fleet owners to track and manage them.

• Kenya has been offering incentives for the local assembly of vehicles to boost the local manufacturing sector, whose contribution to its Gross Domestic Product (GDP) has been shrinking over the last 10 years.

• The market for electric three-wheelers in Africa is nascent, but is growing. The size of this market as measured by revenue from sales was $75 million in 2024. It is, however, anticipated to reach $194 million in 2032. 

Our take

• Kenya’s electric three-wheelers market is ready for disruption. Major cities in Kenya such as Nairobi, Mombasa, Kisumu and Nakuru are growing rapidly. As congestion in these cities grows, commuters will need flexible, cost-effective and cleaner methods of getting around. There is a market opportunity for investors to disrupt Car & General’s vast lead in the electric three-wheelers market.

• Tax incentives and facilitative tax policies will play a central role in the electric three-wheelers market’s growth. The cost of doing business in Kenya is high relative to its regional competitors. This is mainly due to high taxation, cost of labour and power prices. Should the Kenyan government address these key issues, investors will be more incentivised to invest in the market.

• Kenya does not have enough battery swapping stations for electric two-wheelers and three-wheelers. Battery swapping involves switching out a depleted battery for a fully charged one at a swapping station within the battery swapping operator's network. While companies like Roam and Arc Ride have been rolling out these stations in Nairobi and its environs, more investment is needed to make it easier for adoption of these new energy vehicles.