Rwanda’s Initiative to Promote Electric Vehicles Through Tax Reforms

Rwanda is revising its tax policy on hybrid vehicles to encourage eco-friendly transportation by reintroducing an 18 percent VAT on older hybrids, which had been exempt. The focus is shifting towards newer hybrid and electric vehicles to enhance environmental benefits, as the current fleet is largely aged. Legislative proposals will introduce excise duties based on the age of the vehicles, aiming to incentivize the importation of newer models.

Rwanda is actively revising its tax policy regarding hybrid vehicles to foster the growth of eco-friendly transportation. Godfrey Kabera, the Minister of State for National Treasury, informed Members of Parliament on March 19 about the proposed amendments to the 2023 VAT law, which aim to reintroduce an 18 percent VAT on hybrid vehicles that were previously exempt since 2021. This decision is grounded in concerns about the aging fleet of imported hybrids that undermine environmental efforts.

Kabera highlighted that 45 percent of hybrid vehicles imported to Rwanda between July 2021 and July 2024 are between 10 to 14 years old, reducing their environmental benefits. The Rwanda Revenue Authority (RRA) reports that from 2020 to 2024, only 512 of the 7,172 imported hybrid and electric vehicles were electric. This indicates that over 92.8 percent were hybrid, raising concerns about promoting the purchase of older, potentially more polluting vehicles. Kabera emphasized the importance of moving towards pure electric vehicles.

Member of Parliament Odette Uwamariya acknowledged the necessity for financial measures but expressed concern about the removal of the VAT exemption for hybrid vehicles. She advocated for a potential solution that allows the exemption to remain for newer, less polluting hybrid models to reduce emissions effectively.

Kabera noted that the initial VAT exemption was meant to promote hybrid vehicles; however, as they age, their reliance on gasoline or diesel increases, contradicting the goal of e-mobility. He stressed the importance of importing newer hybrid models alongside efforts to enhance public awareness of hybrid technology. New excise duty rates will be established based on vehicle age to promote newer models, as VAT exemptions are now deemed unnecessary due to the understanding of hybrid vehicles in the market.

Moreover, the government aims to amend the 2023 excise duty law, proposing differentiated excise duties for varying vehicle ages: 5 percent for vehicles under three years, 10 percent for those aged over three but under eight years, and 15 percent for vehicles older than eight years. This legislative proposal has been recognized by Parliament and will undergo assessment by a parliamentary committee before proceeding to a vote.

In conclusion, Rwanda’s initiative to revise its tax policies underscores a commitment to environmentally sustainable transportation. By reintroducing VAT on older hybrid vehicles and promoting the importation of newer models through structured excise duties, the government aims to enhance its eco-friendly efforts. The legislative changes signify Rwanda’s strategic shift towards prioritizing electric vehicles while addressing the challenges posed by aging hybrids in the automotive market.

Original Source: www.newtimes.co.rw