The government has updated its Value Added Tax (VAT) exemption policy, introducing expiration dates for certain tax breaks.
These time-limited exemptions now apply to raw materials, machinery imported by industries, electric vehicles (EVs), and energy equipment.
At the same time, VAT exemptions have been removed for some goods and services.
According to the revised VAT law, each exemption now comes with a specific deadline. For example, energy supply equipment, including solar energy materials, will remain VAT-exempt only until June 30, 2028.
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Speaking on the rationale behind the decision, Godfrey Kabera, Minister of State for National Treasury at the Ministry of Finance and Economic Planning, explained that the development of renewable energy materials is still ongoing, which is why the timeline was extended.
"Right now, these energy materials, such as solar energy equipment, have not yet reached the level of development we desire. However, given their rapid progress, we anticipate that by the set deadline, they will be widely available and accessible,” he said.
"By setting a clear timeline, we are giving investors, sellers, and importers advance notice about when they will begin paying taxes. This approach encourages them to accelerate adoption, familiarise themselves with the products, and be fully prepared for taxation once the exemption period ends,” he added.
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Machinery, capital assets, and raw materials for industries will remain exempt from taxes until June 30, 2026.
However, mobile telephones, SIM cards, and information and communication technology (ICT) equipment and services have been removed from the list of exempt items.
"For manufacturing equipment used in industries, the exemption was introduced to help industries recover from the impacts of COVID-19. We believe this is the right time for them to start paying the proper taxes and contribute their fair share,” Kabera said.
"ICT resources have been exempted from taxes since 2010. Given that over 80 per cent of the population now has access to phones and SIM cards, and with ICT materials being widely available, we felt it was the right time to end the exemption,” he added.
According to the Minister, the goal of promoting ICT and technology has been achieved. He explained that the VAT exemptions were originally intended to support importers and boost the availability of these products on the local market.
"The strategy has been successful, leading to increased investment in local manufacturing,” he noted.
Kabera also said that only a few items will remain exempt from tax, particularly materials that are critical for investment. With the Ministry of ICT working closely on these matters.
Imported electric vehicles (EVs) and charging equipment will remain exempt from taxes until June 30, 2028 while hybrid automotive vehicles and their relevant batteries have been removed from the list of exempt items.
The tax exemption for hybrid cars and their batteries was introduced to encourage their adoption and protect the environment, helping people become accustomed to them and understand that they function like regular cars, said Kabera.
"This has already been achieved, and the tax reform now aims to support the transition to fully electric vehicles, similar to the shift made with hybrid cars,” he said.
"Electric vehicles have been exempted from taxes for 7 years, with this exemption lasting until 2028. By that time, we expect them to have had the desired impact, much like hybrid cars have,” he added.
Kabera also said that if additional time is needed to achieve fully electric cars, extending the exemption period may be considered.