As Uganda seeks a green and sustainable future, adopting electric vehicles (EVs) is a crucial step in reducing carbon emissions and enhancing energy independence. However, high import duties on electric cars threaten to derail this transition. In Uganda, the cost of cars is significantly influenced by taxes on imported vehicles, which are based on factors like the year of manufacture, engine size, and car type. This often results in older vehicles being more expensive after taxes, even if purchased at a lower initial price. Unfortunately, the widespread use of cars over ten years old carries significant drawbacks.

Older vehicles contribute to environmental pollution, making Kampala one of the most polluted cities. They also pose safety risks due to outdated safety features, and their maintenance costs can be prohibitively high over time. However, tax amendments introduced in 2023 brought positive news for those seeking sustainable and cost-effective transportation. Electric and hybrid vehicles were exempted from import duty, providing a 25% cost advantage over traditional internal combustion engine cars.

Electric vehicles operate solely on batteries, while hybrid cars use a combination of batteries and internal combustion engines. This strategic move by the Uganda Revenue Authority (URA) not only advanced the country's transition to electric mobility but also encouraged cleaner driving practices, aiming to reduce pollution from traditional cars.

The Impact of the 2023 Tax Exemptions

Beyond environmental benefits, the exemption of hybrid and electric vehicles from import duty made them more affordable compared to internal combustion engine cars. This move was expected to boost the adoption of electric vehicles and create business opportunities, as entrepreneurs could invest in charging infrastructure. Car buyers, in turn, would have the chance to own newer models with better safety features, more comfortable interiors, and modern technology.

However, in June 2024, Uganda reintroduced a 25% import charge on all-electric vehicles, hybrids, and electric motorcycles. This increased the price of a new Nissan Leaf in Uganda by over Ush 51 million ($13,750), raising its cost from Ush 204.3 million ($55,000) to Ush 255.3 million ($68,750), making it more expensive.

Data from the URA showed that electric car imports surged to 420 units in the fiscal year 2023-2024, up from 26 the previous year when import duties were applied. Among these, 403 were hybrid vehicles, and 17 were fully electric, highlighting the effectiveness of subsidies in encouraging Ugandans to shift from gas-powered cars to hybrids and electric vehicles.

While the government aims to generate revenue and protect local industries, these taxes may inadvertently slow down EV adoption, preventing Uganda from fully benefiting from electric mobility.

Positive Policy Adjustments for 2024

In the 2024 tax proposals, Uganda plans to eliminate Value Added Tax (VAT) on electric vehicles or parts manufactured in Uganda, as well as on the supply of EV charging equipment and services. This would reduce costs by 18%, making EVs more accessible and supporting the development of the necessary infrastructure to increase electric mobility.

The mobility sector is a significant contributor to global GDP, accounting for over 13%, according to McKinsey and Company. In Uganda, road vehicles made up 25% of total imports in the financial year 2021/22, ranking third after petroleum and medical supplies. Incentivizing electric vehicle manufacturing could help reduce Uganda’s import bill and foster the nascent automotive industry.

Removing VAT on electric vehicles and locally manufactured parts is a positive step, but it is not enough to boost EV adoption when high import taxes persist.

The Challenges Facing Domestic Manufacturing

According to the article "Electric cars are the future, but is Uganda ready?" published by the Monitor, Kiira Motors Corporation (KMC), Uganda's electric bus manufacturer, stated that electric vehicle importation tax free incentive, which eliminates taxes on imported electric cars raised the prices of the cars it puts on the market, discouraging uptake of its products. 

Although promoting domestic manufacturing is commendable, the country lacks the capacity to produce enough electric vehicles for the local market, as KMC specializes in buses for public transport, not private passenger cars. The 25% tax on imported electric cars continues to impact those seeking EVs for personal use, which could hinder efforts to reduce carbon emissions from private vehicles.

Since its inception in 2011, KMC has produced 39 buses, including 27 electric models and 12 low-emission diesel buses. Uganda aims to manufacture 500,000 buses by 2040, but what about private car buyers who contribute significantly to carbon emissions? The new import tax policy limits EV adoption for this segment.

At Pearl EV, we recognize that the policy intends to promote domestic manufacturing. However, with the industry still in its infancy, the zero-tax policy on EVs should be extended for at least ten more years to allow time for growth in the local manufacturing sector. This will help Uganda achieve its goal of zero emissions by 2040.

Why High Import Duties on Electric Cars Could Hinder a Sustainable Future

1. High Import Costs Make EVs Unaffordable

Import duties raise the final cost of electric vehicles, making them less accessible to average consumers. With a relatively low per capita income in Uganda, affordability is a critical factor in car purchases. The initial cost of an electric vehicle is already higher than that of a conventional internal combustion engine (ICE) car due to the expensive batteries and advanced technology used. Additional import duties only widen the price gap, placing electric cars beyond reach for many buyers.

Electric cars face challenges such as high battery costs and limited range, unlike gasoline cars. The reintroduction of import taxes may cause a decline in electric vehicle sales, as consumers opt for cheaper, used cars from Japan. While these cars are more affordable and can travel longer distances, they also contribute to carbon emissions, the very problem electric vehicles are designed to address. The government needs to recognize that these taxes are not just imposed on electric cars but on the people who must bear the cost.

The high cost of acquiring EVs makes it difficult for Uganda to create a strong market demand, which is essential for driving down prices through economies of scale. Without a significant reduction in upfront costs, widespread adoption will be slow, and the country may miss out on the economic and environmental advantages of early EV integration.

2. Impact on the Development of a Supporting EV Ecosystem

The success of electric vehicles goes beyond having cars on the road; it involves building an ecosystem that includes charging infrastructure, battery recycling, maintenance services, and workforce training. High import duties deter individuals and businesses from investing in electric vehicles, resulting in limited adoption and a smaller market.

A smaller market discourages investors from developing the necessary infrastructure, such as charging stations and maintenance facilities. f investors perceive that there isn't sufficient demand for electric cars, they may be hesitant to invest in infrastructure projects. This creates a chicken-and-egg problem, where a lack of infrastructure slows EV adoption, and slow adoption discourages infrastructure development. According to electric vehicle dealers, the country’s unstable tax policy complicates planning and deters investors.

The development of charging infrastructure is crucial for electric vehicle adoption. However, without a significant number of electric vehicles on the road, private investors will be hesitant to invest in charging stations. A tax-free import environment will accelerate electric vehicle uptake, thereby creating a demand for charging infrastructure.

3. Reducing the Opportunity for Long-Term Savings

Electric vehicles are known for their low operating costs, with significantly reduced expenses on fuel and maintenance compared to gasoline-powered cars. For instance, the cost of electricity in Uganda is relatively stable compared to fluctuating fuel prices, making EVs more economical to run over the long term. However, if import duties significantly raise the initial cost of purchasing an electric car, potential buyers may not see the value in making the switch despite these long-term savings.

The financial burden imposed by high import duties effectively negates the potential economic benefits that EV owners could enjoy. By keeping EVs financially inaccessible, Uganda will miss out on the overall economic benefit of lower transportation costs for households and businesses, which could otherwise help boost economic growth.

4. Missed Environmental and Health Benefits

Electric vehicles play a significant role in reducing greenhouse gas emissions and improving air quality, especially in urban areas where vehicle exhaust is a primary source of pollution. The slower adoption of EVs due to high import duties means that these environmental and health benefits will take longer to realize. The continued reliance on fossil-fuel-powered vehicles contributes to air pollution, which is linked to respiratory diseases, cardiovascular conditions, and other health problems.

Moreover, Uganda is already experiencing the effects of climate change, with more irregular rainfall patterns. Faster EV adoption would contribute to a reduction in the nation’s carbon footprint and could help mitigate some of these adverse effects. Thus, import duties that hinder the adoption of electric vehicles may inadvertently prolong the country's reliance on fossil fuels and delay progress towards achieving its climate goals.

5. Slowing Technological Advancement and Economic Transformation

Adopting electric vehicles is not just about going green; it is also about embracing technological advancement and economic transformation. The transition to electric mobility provides a unique opportunity for Uganda to reduce its reliance on imported fuel, save foreign exchange reserves, and develop new skills and industries related to EV technology. By imposing high import duties on electric cars, the country risks slowing the pace of technological progress and missing out on the economic opportunities that come with being an early adopter of green technologies.

Countries that embrace EVs and renewable energy early are likely to become leaders in the emerging global green economy, attracting investment and creating jobs in new industries. Conversely, those that lag may find it difficult to catch up and may have to spend more to transition later.

6. Encouraging the Import of Older and Less Efficient Cars

The high import duties on electric vehicles inadvertently encourage consumers to continue purchasing used, conventional cars, which are often more affordable due to lower taxes. Uganda has a large market for used cars, with most vehicles imported being over ten years old. These older vehicles are less fuel-efficient and produce more emissions, leading to higher levels of pollution and increased fuel consumption.

By keeping electric cars expensive through import duties, the government inadvertently supports the status quo, where old and less efficient vehicles dominate the market. This perpetuates the use of outdated technology and prolongs the nation's dependence on fossil fuels.

7. Discouraging Early Investment and Innovation in Local EV Production

While some governments impose import duties to protect and encourage local industries, Uganda's electric vehicle industry is still in its infancy. High import duties on electric vehicles may discourage both foreign and local investors from entering the market, as the demand for such vehicles remains low. Without a clear incentive for adopting electric mobility, local entrepreneurs may be hesitant to develop EV-related technologies, repair shops or establish local manufacturing and assembly plants.

To build a local EV industry, Uganda needs a strategy that stimulates demand while also encouraging investment in production and infrastructure. Reducing import duties could serve as a catalyst, stimulating market growth and attracting investments that could eventually lead to local manufacturing, job creation, and technology transfer.

8. Limited Public Awareness

Increasing electric vehicle adoption is essential for raising public awareness and acceptance. With almost 99% of people in Kampala having never seen an electric car, removing import taxes could encourage early adopters and create a visible demonstration effect that stimulates demand.

9. Hinders bridging the gap to local manufacturing

Kiira Motors’ target of achieving local production of electric vehicles for personal use by 2040 is commendable. However, removing import taxes in the interim will foster a conducive environment for electric vehicle adoption, allowing the market to mature and creating a foundation for the success of locally produced models.

Lowering the cost of electric vehicles through tax exemptions will make them more accessible to a wider range of consumers. Additionally, it will provide valuable market data on consumer preferences, enabling local manufacturers to tailor their products accordingly.

Recommendations for Policy Adjustments

To accelerate the adoption of electric vehicles and unlock the associated economic, environmental, and health benefits, the Ugandan government should consider revising its import duty policy. Here are some suggestions:

• Reduce or Eliminate Import Duties on Electric Vehicles: Lowering the import tax on electric cars will make them more affordable and increase their adoption rate.
• Offer Incentives for EV Purchases: These could include tax rebates, exemptions from road tolls, or discounted electricity rates for charging electric vehicles.
• Invest in Infrastructure Development: Expanding the network of charging stations across the country can make electric vehicles more practical and attractive.
• Promote Local Research and Development: Support local innovation in EV technology and provide incentives for companies that invest in electric vehicle production and related industries.

Norway's success in EV adoption serves as a model, demonstrating that a combination of financial incentives, infrastructure development, and supportive policies can accelerate EV uptake. Policies such as tax exemptions, free charging, and access privileges for EVs have made Norway the global leader in electric mobility.

The government should reconsider the import duty on electric vehicles and to implement policies that support a rapid transition to cleaner transportation. By doing so, Uganda can position itself as a leader in sustainable development and contribute to global efforts to combat climate change. Embracing EVs begins with the people; it's not just about the government promoting them, but about ensuring that the public is convinced that they are the best mobility option.

High import duties on electric cars present a significant barrier to the adoption of electric vehicles in Uganda. By making EVs less affordable, the country risks slowing the transition to a sustainable transport system, missing out on economic savings, and prolonging dependence on fossil fuels. Revising import duty policies and implementing supportive measures for EV adoption could be transformative, helping Uganda to achieve its environmental goals, improve public health, and position itself as a leader in the green economy.