Finance Bill: E-mobility, local phones makers face setbacks

BasiGo's latest model. The govt had exempted fully electric cars from VAT. [Denish Ochieng, Standard]

The local e-mobility and mobile phone assembly industries, which are still in their nascent stages, are facing a major setback if the ="https://www.standardmedia.co.ke/business/business/article/2001494052/is-government-on-fuliza-mode-what-treasury-numbers-show">National Treasury< succeeds in pushing through the Finance Bill 2024, which has proposed to subject Value Added Tax (VAT) on electric buses and locally made mobile phones. 

Some solar appliances, whose popularity has grown among both industries and households, will also be affected, with the ="https://www.standardmedia.co.ke/testbed/sports/amp/business/2001495009/state-seeks-legal-backing-to-spy-on-your-m-pesa-bank-accounts">Finance Bill< also seeking to slap solar and lithium-ion batteries with the 16 per cent VAT.

The government had last year removed certain taxes on ="https://www.standardmedia.co.ke/business/business/article/2001494944/queries-over-mckinsey-contract-in-kenyas-e-mobility-transition">fully electric vehicles<, a move players said had seen Kenyans’ interest in transitioning to EVs grow and even resulted in increased demand for this cadre of vehicles, noting the country stands to make huge savings on money spent in importing petroleum products. The industry has been further pushing for more tax incentives but Treasury has instead proposed a tax hike. 

“The incentives for the e-mobility sector had been introduced in 2023 to incentivize green energy use in the transport sector. There has been increased uptake of ="https://www.standardmedia.co.ke/business/business/article/2001492647/firms-in-pact-to-drive-up-electric-bikes-uptake">electric buses and electric bicycles< in Kenya with numerous start-ups setting up in Kenya,” said Law Bowmans in an analysis of the Finance Bill. 

“The standard rating of the supplies of electric buses and vehicles could increase the cost of these e-mobility products and slow down the growth in the sector.”

The government last year reduced excise duty on EVs from 20 per cent to 10 per cent and exempted fully electric cars from VAT. It also introduced an e-mobility electricity tariff that offers EV owners cheaper rates to charge their cars.

This, according to the ="https://www.standardmedia.co.ke/national/article/2001493203/fuel-prices-reduced-by-sh10-in-latest-epra-monthly-review">Energy and Petroleum Regulatory Authority<, resulted in a 250 per cent growth in the number of registered electric vehicles in the six months to December 2023 to 3,753.

The number of EVs registered in the country last year stood at 1.62 per cent of vehicles registered but with adequate incentives and right policies, the government says the number of EVs can account for five per cent of new vehicles registered in the country in 2025.

Also likely to be hit if the proposals in the Finance Bill sail through is the growing solar energy sector following the proposal to subject solar and lithium-ion batteries to VAT. 

Many firms have taken to installing their own power plants in a bid to reduce power bills and also reduce their ="https://www.standardmedia.co.ke/health/environment-climate/article/2001480294/carbon-tax-a-timely-solution-for-kenyas-climate-goals">carbon footprint<. Households too have been installing appliances as well as small solar units also to reduce power and improve reliability. 

According to Epra, small power plants installed by companies had a combined capacity to generate 449.5 megawatts and constituted 12.18 per cent of the country’s installed capacity as of December 2023.

Households and industries that are planning to install solar should expect to pay higher prices, especially in instances where the solar power units have batteries that store electricity generated during the day for use at night. 

The Finance Bill has also proposed to introduce VAT on locally produced mobile phones. The country produced its first locally manufactured mobile phone, an entry-level smartphone, last year at the East Africa Device Assembly Kenya Limited in Athi River. The plant has aspirations to produce not just mobile phones but other devices including laptops. This could suffer as the Treasury seeks to collect taxes from this and other plants that produce these devices locally.

“In 2023, Kenya unveiled its first phone assembly plant. The zero-rated status should be maintained to encourage investment,” said Bowmans in the analysis.