Ethiopian authorities have issued circulars clarifying that imported and locally sold electric vehicles are exempt from Value Added Tax (VAT), aimed at resolving confusion among dealers over the tax status of EVs.
The Ministry of Finance, Addis Ababa City Revenue Bureau and Ministry of Revenue all sent out circular letters, stating that electric vehicles are VAT-free during import and local sales.
The circulars come as the government seeks to encourage electric vehicle investment by waiving various taxes including excise tax, VAT, surtax and partially customs duties. The tax exemptions were announced in September as part of plans to promote environmentally sustainable transport.
Officials hope removing taxes on electric vehicles will accelerate their adoption and assembly within Ethiopia, enabling the country to tap into the fast-growing global market for electric cars.
However, the exemption caused confusion among revenue officials over whether EVs were exempt upon importation and during local sales.
The clarification follows “repeated problems” car dealers experienced due to ambiguous guidance on the tax exemption for EVs, according to a letter from the Ministry of Revenue seen by The Reporter.
The letter states: “The sellers were repeatedly requesting confirmation as they faced issues.”
“They [electric vehicles] are exempted from VAT while being imported and also sold in the local market,” Eyob Tekalign, state minister said in another letter last month.
The Revenue Ministry also wrote to its branches last month with the same decision.
The Addis Ababa City Revenue Bureau also instructed all district branch offices to “serve taxpayers accordingly and provide appropriate responses to their inquiries.”
An EV importer who spoke to The Reporter confirmed selling EVs locally without VAT, following clarification from revenue officials. The seller said he initially exempted EVs from VAT based on verbal confirmation from local revenue officials, indicating the level of uncertainty dealers faced initially.
“It was ambiguous at first, so we consulted locally and began selling without VAT,” the seller said.
Due to the tax exemptions, assembled EVs now only pay a 15 percent duty tax, withholding tax, and three percent social responsibility tax.
“The good thing is these applied taxes are added only to the Cost, Insurance and Freight (CIF) values and that they are not progressive,” the seller said.
Officials hope the clarified guidance will help boost Ethiopia’s fledgling EV industry by enabling dealers to offer competitive prices that reflect the intended tax exemption.
