The government noted that many imported hybrid cars were outdated, with their hybrid technology often malfunctioning or failing after a short period. Between July 2021 and July 2024, data revealed that 45% of hybrid vehicles imported into Rwanda were between 10 and 14 years old.
During a parliamentary session on March 19, 2025, where amendments to the VAT law were discussed, Minister of State in the Ministry of Finance and Economic Planning, Godfrey Kabera, explained that several previously exempted items had become obsolete and needed to be taxed.
"The list of goods now subject to VAT includes technology equipment and services related to media and telecommunications, road transport for goods, mobile phones that use SIM cards, hybrid vehicles, and their batteries," Kabera stated.
Some exemptions remain, but only for a limited period. Fully electric vehicles and electric charging station equipment will continue to be tax-free until June 30, 2028.
Equipment related to renewable energy will remain tax-free until June 30, 2028, while industrial machinery and raw materials for manufacturing will be exempt until June 30, 2026.
Rwanda's environmental and economic justification
Kabera pointed out that many imported hybrid cars were too old to function effectively as hybrid vehicles and ended up relying solely on gasoline or diesel, thereby defeating the environmental purpose of tax exemptions.
"When these cars are too old, they operate only on gasoline or diesel, meaning that our environmental goals are not being met. Now that people are familiar with hybrid cars, we want to encourage the purchase of newer models. That is why we introduced a tax system that varies based on the car's age," he explained.
Kabera emphasized that Rwanda aims to encourage the importation of new or fully electric vehicles to align with its environmental protection policies. "For VAT, we believe it is time for people to adapt. Fully electric cars remain exempt, and we want to ensure that our environmental protection and climate preservation strategies focus primarily on promoting fully electric vehicles," he added.
The new VAT policy on hybrid cars will be based on their age at the time of importation. Vehicles under three years old will be taxed at 5%, those between three and eight years old at 10%, and those older than eight years at 15%.
VAT reintroduced on mobile phones
The government has also decided to reinstate VAT on mobile phones, citing the fact that over 80% of households in Rwanda already own one. Initially, telecommunications devices were exempt from VAT to encourage digital adoption, but the high penetration rate has led to a policy shift.
Kabera clarified that the new tax would not significantly increase phone prices or discourage their use.
"The issue is not the cost of smartphones but the fact that many people lack the knowledge to use them effectively," he noted.
MP Jean Claude Ntezimana raised concerns about how taxing mobile phones could impact Rwanda's digital transformation efforts.
"In the past, the government encouraged citizens to adopt digital technology to accelerate development. Now that over 80% of households own phones, I worry that introducing taxes could hinder efforts to achieve 100% penetration, which is crucial for national progress," he said.
Kabera reassured lawmakers that the government was working on initiatives to improve digital literacy so that more Rwandans could effectively use smartphones and other technological tools.
IGIHE
Source : https://en.igihe.com/news/article/gov-t-explains-new-vat-policy-on-hybrid-cars
