The five percent increase came after the International Monetary Fund’s (IMF) had urged Ethiopia to expand its tax base. However, it may impact vehicle affordability in a country where vehicle ownership rates are already among the lowest in the world, with just one vehicle per 100 people.
This move also comes at a critical time for Ethiopia’s economy, as rapid technological developments and policy changes are creating new opportunities, particularly for U.S. businesses interested in Ethiopia’s electric vehicle (EV) market.
In January 2024, as part of its bold commitment to a green economy, Ethiopia became the first country to ban the importation of internal combustion engine vehicles. This pioneering legislation has opened doors for international electric vehicle manufacturers, especially U.S. firms, to invest in Ethiopia’s emerging EV market.
With over 120 million people, Ethiopia’s tax structure has historically limited vehicle ownership due to high taxes on combustion-engine vehicles, which include up to 100 percent excise tax, 15 percent VAT, a 10 percent surtax, and a 3 percent withholding tax.
In contrast, EVs benefit from considerable tax incentives, such as the elimination of VAT, excise taxes, and a reduced customs duty rate of 15 percent (or even 5 percent for partially assembled EVs). This favorable environment, coupled with an anticipated rise in electricity supply from the Grand Ethiopian Renaissance Dam, positions Ethiopia for an upsurge in EV ownership.
The number of EVs in Ethiopia has grown to over 30,000, including both passenger and commercial vehicles. The Ethiopian government projects that, by 2032, there will be 148,000 passenger EVs and nearly 5,000 commercial EVs. Addis Ababa, the capital city, is leading the way, having invested in 110 electric buses at a cost of $15 million in 2022.
MG/abj/APA