By Winnie Kamau
Nairobi, Kenya: In the bustling streets of Nairobi, where the demand for quick and efficient food delivery services is soaring, a new proposal in the Finance Bill 2024 threatens to disrupt the operations of digital food delivery platforms like Glovo, Jumia, and Uber Eats.
According to a report released by VIffa Consult, the bill, specifically section 42, proposes the deletion of the VAT exemption for electric bicycles, a move that could have far-reaching consequences for businesses relying on these eco-friendly transportation solutions.
The Proposed Amendment
According to the Viffa report dubbed Analysing the Impact of the Finance Bill 2024 on MSE Growth in Kenya. states that the Finance Bill 2024 aims to remove the description “Motorcycles of tariff 87.11 other than motorcycle ambulances, locally assembled motorcycles, and electric motorcycles” from the First Schedule to the Excise Duty Act Part I – Excisable Goods.
This change effectively introduces VAT on electric bicycles, which were previously exempt. The proposal has sparked significant concern among stakeholders, who argue that it should be dropped.
Increased Costs for Green Transportation
The report further states that electric bicycles are a lifeline for many digital MSMEs, especially those engaged in food delivery services. These bicycles offer a cost-effective and environmentally friendly means of transportation, crucial for last-mile deliveries in urban areas. The introduction of VAT will increase the purchase cost of electric bicycles, making it less affordable for small businesses to adopt or maintain these green transportation solutions. This additional financial burden could drive up operational costs, impacting the affordability and efficiency of delivery services.
Hindrance to Sustainability Goals
The move to impose VAT on electric bicycles runs counter to global and local sustainability initiatives. Viffa report says by creating a financial disincentive for businesses to adopt eco-friendly transportation, the bill undermines efforts to reduce carbon emissions and combat climate change. MSMEs committed to aligning with sustainability goals will face increased costs, potentially deterring them from investing in greener alternatives. This shift contradicts the broader environmental objectives that are vital for Kenya’s sustainable development.
Negative Impact on Innovation and Modernization
Electric bicycles represent more than just a green option—they are a step towards modernization and increased efficiency for MSMEs. The additional tax burden could stifle innovation within the sector. Businesses that might have considered upgrading to electric bicycles for their efficiency and environmental benefits may now reconsider due to the higher costs imposed by the VAT. This reluctance to modernize could hinder overall sector growth and adaptation to modern, sustainable practices, stalling progress in the digital economy.
Increased Operational Costs
For MSMEs already utilizing electric bicycles, the new VAT will result in higher operating expenses. These increased costs will directly impact their bottom line, especially for those operating on thin margins. To cope with the added expenses, businesses may have to pass on the costs to customers, potentially making their services less competitive. This shift could affect the affordability and accessibility of delivery services, hitting consumers and small businesses alike.
Disproportionate Impact on Small Businesses
The financial burden of the VAT on electric bicycles will disproportionately affect small businesses in delivery services, retail, and small-scale logistics. These enterprises often rely on cost efficiency and ease of use of electric bicycles, particularly in congested urban areas. Small businesses have fewer resources to absorb such additional costs than larger companies. This disparity could widen the gap between small and large businesses, affecting market fairness and competition.
Potential Reduction in Adoption of Electric Bicycles
The increased cost resulting from the VAT may lead to a significant reduction in the adoption of electric bicycles by MSMEs. This could slow the shift towards greener transportation options in Kenya, which is crucial for reducing pollution and enhancing urban mobility. The policy change might push businesses towards cheaper, less environmentally friendly transportation methods, negating progress made in promoting sustainable practices and hindering efforts to create a more sustainable urban environment.
As Kenya navigates its path towards economic growth and environmental sustainability, the proposed deletion of the VAT exemption for electric bicycles in the Finance Bill 2024 presents significant challenges. Viffa Consult notes that while the bill aims to streamline tax policies, the potential negative impacts on green transportation, sustainability goals, and the MSME sector cannot be overlooked.
Policymakers must carefully consider these implications to ensure that Kenya’s journey towards a modern, sustainable economy remains on track, supporting businesses like Glovo, Jumia, and Uber Eats that rely on innovative, eco-friendly solutions for their operations.
