In an effort to address the country's growing budget deficit, the Ethiopian government has introduced new taxes and increased existing ones. The vehicle sector, in particular, has been affected, with electric vehicles (EVs) being the primary target. This move has sparked concerns among consumers and industry stakeholders, who are eager to understand the implications of these changes.
The Budget Deficit: A Growing Concern
As a result of increased government expenditure and exchange rate adjustments, the government is seeking to widen its tax base and adjust existing taxes. The budget deficit has been a pressing issue for the Ethiopian government, and the introduction of new taxes is seen as a necessary measure to address this challenge. With fuel-powered cars banned from entering the country, EVs are now the sole focus of these tax increases.
Breaking Down the Taxes
BirrMetrics has analyzed the new taxes imposed on EVs, which are as follows:
Custom Taxes
Increased from 0 percent to five percent.
This tax is levied on the importation of EVs, and the increase is expected to generate significant revenue for the government.
Value-Added Tax (VAT)
Applied only to final consumers at a rate of 15 percent.
VAT is a consumption tax that is applied to the final sale of EVs. The 15 percent rate is in line with the standard VAT rate in Ethiopia.
Withholding Taxes
It is only three percent.
Withholding taxes are levied on the income earned by individuals and businesses. In the case of EVs, the three percent tax withholding tax is applied to the income earned by importers and sellers.
Social Welfare Tax
Three percent only
The social welfare tax is a new tax introduced by the government to fund social welfare programs. The rate is applied to the sale of EVs.
Total Tax Burden
The total tax imposed on EVs now stands at 27 percent, a significant increase from the previous percent. Market players warn the increased tax burden may deter consumers from purchasing EVs, which could hinder the growth of the electric vehicle market in the country.
