Kenya ruling sets precedent for e-bikes assembly

From the newsletter

Ebee Mobility Kenya, a Kenya-based electric bicycle assembler, will pay more taxes after its parts were classified as complete bicycles as opposed to completely-knocked-down (CKD) kits, which benefit from lower taxes. The ruling, made by a tribunal last week, emphasized that a motor, not a battery, fundamentally defines an e-bike. 

• The ruling means that e-bike assemblers will be paying the standard 25% import duty on parts, more than double the preferential 10% duty that CKD kits currently enjoy, raising their cost of operations. 

• The consequence of this is that electric mobility companies operating in Kenya will have to tweak their models to significantly include local components in their vehicles to qualify for preferential taxes.

More details

• The tribunal backed findings by Kenya’s tax agency, the Kenya Revenue Authority (KRA), which discovered that the imported components by Ebee essentially constituted complete e-bikes lacking only batteries. The critical element in their determination was the presence of motors integrated into rear wheel assemblies, it ruled.

• This configuration, according to KRA, qualified the company’s imports as fully assembled units, subjecting them to higher taxation of 25% import duty, 16% VAT, and an $81 per unit excise duty.

• The ruling sets a precedent in Kenya, which is home to dozens of electric vehicle manufacturers and dealers, majority of whom deal in electric motorcycles. These companies, mainly startups, import CKD kits, particularly from China and assemble them locally.

• Kenya has been struggling to balance between its need to collect taxes from the rapidly growing industry and nurturing it to grow to support local jobs creation. This has led to back-and-forth introduction and removal of taxes on EVs as policy makers struggle to strike a common ground with industry stakeholders.

• But this is something that is also troubling other countries in Africa, which have varying levels of local content percentage requirements for their EV companies. Countries such as South Africa, Morocco and Egypt, which are frontrunners in Africa’s e-mobility space, for instance still primarily rely on imported parts to make EVs.

• There is however worry – and rightly so – that putting a high threshold for local content will derail the adoption of EVs in Africa. This is because most countries on the continent are not ready to make the required parts locally. Only Morocco has outlined concrete plans and made progress towards becoming an end-to-end manufacturer of EVs on the continent.

• On the other hand, there is also concern that African countries are prioritising their short-term revenue needs at the expense of supporting e-mobility. On one hand, one can sympathise with governments, which are under immense debt pressure. However, EVs present them with an opportunity to widen their manufacturing bases and create jobs.

Our take

• The EV industry is fairly new to Africa, and because the sector is rapidly changing, laws tend to be behind, forcing fresh changes to the laws or their interpretation. While this is hectic in the short-term, it will lead to stability in the long-term.

• African countries are unlikely to significantly improve their capacity to make enough EV components locally in the short and medium term. They will continue to rely on imports from suppliers like China at a cheaper price.

• Policymakers will make or break Africa’s e-mobility transition. Countries that prioritise their short-term revenue needs over supporting their local EV industries will likely lag behind in adopting EVs.