Rwanda has reintroduced value-added tax (VAT) on hybrid vehicles, a move aimed at promoting pure electric mobility, according to the Minister of Finance and Economic Planning, Yusuf Murangwa.

He was speaking at a press conference held on Tuesday, February 11, to provide details on several tax policy reforms that were approved by the Cabinet meeting a day before.

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A hybrid vehicle is a vehicle which uses a combination of an internal combustion engine (powered by petrol or diesel engine) and an electric motor to be able to move.

As such, it is more environmentally friendly than petrol or diesel cars by using less fuel and releasing much fewer carbon emissions.

The Ministry of Finance indicated that in order to promote green mobility and reduce carbon emissions, hybrid vehicles will continue to benefit from import duty exemption of 25 per cent.

However, hybrid vehicles will now be subject to an 18 per cent VAT, ending the exemption that had been in place since 2021.

According to the Rwanda Revenue Authority (RRA), VAT is a consumption tax that is ultimately borne by the final consumer.

"We want to encourage a transition that moves from hybrid to pure electric,” Murangwa told the press during a briefing. "Pure electric [cars] will be very cost-effective going forward for almost everyone, but also for environmental reasons.”

The minister added that electric vehicle technology is advancing, leading to a gradual decline in prices.

Under the new reforms, hybrid cars will also pay a withholding tax of 5 per cent.

Electric cars exempted

According to the ministry, electric vehicles will remain fully exempted from VAT to promote green transportation, specifying that this measure will take effect in the next fiscal year – 2025/2026.

"We want to encourage people to go even faster to electric vehicles,” Murangwa said. "At the moment, fuel vehicles are relatively expensive in terms of taxes, compared to hybrid cars. Electric vehicles, on the other hand, are very affordable.”

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New hybrid cars incentivised

To incentivise the importation of newer hybrid vehicles with longer battery life, the new measures introduce an age-based excise duty structure: 5 per cent for vehicles under three years old, 10 per centfor those between four and seven years, and 15 per cent for those eight years and older.

Murangwea emphasised that importing older hybrid vehicles poses environmental concerns and offers little to no benefit in terms of hybrid efficiency, making stricter regulations necessary.

"In the past, we waived taxes on hybrid cars. Currently, almost 45 per cent of cars being imported into the country are hybrid cars. But among them, about 43 per cent of them are very old – they were manufactured over 10 years ago,” he noted.

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The Minister noted that hybrid vehicles with battery life between eight and ten years are more prone to failure, often forcing owners to rely on petrol or diesel, which undermines the goal of promoting green mobility.

As such, he added, the country is encouraging the use of new hybrid cars through lower excise duty rate, with a view to significantly reduce petroleum products consumption, and protect the environment.

Data from RRA show that of the 7,172 hybrid and electric cars that were imported into Rwanda from 2020 to 2024, only 512, or slightly over 7 per cent were electric, while 6,660 or more than 92.8 per cent were hybrid.