Reforms to Law 554 are "insufficient" to create an electric car fleet in Nicaragua

Reforms to Law 554 are “insufficient” to create an electric car fleet in Nicaragua

Daniel Ortega sent Gustavo Porras -who holds the presidency of the National Assembly- an ‘initiative of law of reforms by addition’, to Law 554, Energy Stability Law, to offer tax exemptions for the importation of electric vehicles, which would encourage the electromobility in Nicaragua, a country that, until now, does not have a strategy to promote the use of this type of vehicle.

In 2012, article 282 of the Tax Concertation Law established that vehicles with hybrid engines -both those from 0 to 1600, and those from 1601 to 2600 cubic centimeters- would pay 0% import duty (DAI) , 0% selective consumption tax (ISC), and only 15% general value tax (VAT).

“Only one company brought hybrid vehicles to the country, and they stopped taking them because they didn’t catch on among the people,” he told CONFIDENTIAL an auto industry source who chose anonymity for security reasons. In his opinion, “this exemption scheme is identical to the one that works in Costa Rica. They just did copy/paste,” he said.

“That is basically correct,” assured Igor Ortiz, a specialist in electric vehicles, when comparing what the Costa Rican State charges for Customs Value Tax, and General Sales Tax (our DAI and VAT, respectively), as well as the ISC, which has the same name in both countries.

The proposal sent by Ortega to Porras, exempts 100% of the DAI, ISC and VAT, to new electric vehicles, whose value ranges between one and thirty thousand dollars, establishing different percentages for those from 30,001 to 45,000 dollars and for those from 45,001 to 60,000 dollars, after which, all of the established taxes must be paid.

The problem is that there are practically no electric vehicles that cost less than 30,000 dollars, which “in practice means that there will be no vehicle purchased in Nicaragua that can enjoy this total exemption from ISC, VAT and DAI, unless they are preparing to start bringing Chinese vehicles,” said the source from the automotive sector .

“They did not consult with Andiva (the Association of Importers of Motor Vehicles). They would have told them that it makes no sense to exempt vehicles below that amount from taxes,” the source assured.

With the current tax structure, an internal combustion engine sedan is about $15,000, and it goes up to $19,000 because of taxes, but an electric sedan is over $30,000, so even without taxes, the idea of acquiring one ceases to be attractive.

In contrast, the reform contains an incentive to acquire more expensive vehicles, because if for an internal combustion engine valued at 50,000 dollars, 90,000 are paid (its tax burden is higher), the exemptions of 50% of the DAI and the ISC for high-end electrics, they will lower their cost, comparatively speaking.

With stimuli, not by inertia

The source pointed out other shortcomings of this bill, among them, that they were limited to removing taxes on government purchases (central and municipal, as well as the dependencies that depend on them), and that they are going to supervise spare parts for loading sites, the source explained.

In the first case, he pointed out that the reforms to Law 554 do not include a replacement plan for the public fleet. “They should have established the obligation that at least 5% of the new public sector fleets be electric. This does not change by inertia”, he warned.

In the second of the cases, he pointed out that the proposed law exempts all the taxes that the recharging centers of electric vehicles would have to pay, as well as the spare parts of those centers, when “what they must do is facilitate the people can connect from home.

Upon hearing the news, the Nicaraguan Energy Chamber (CEN) recommended “establishing mechanisms to access rates at lower cost differentiated hours, to benefit users who charge electric vehicles at home,” in addition to “creating private infrastructure and public for charging points in the road system”.

“An electric car is like having a giant cell phone on wheels parked in front of your house, only it requires a different plug. That is solved by making a 220 triphasic adaptation in the garage, because the car is not charged in five minutes: it requires four to six hours, depending on the technology used”, explained the source of the automotive sector.

Normal mid-range vehicles can travel 200 to 300 kilometers on a charge, while the batteries of more expensive ones offer 400 to 500 kilometers of autonomy.

“The fact that the law does not contemplate creating a charging infrastructure will reduce confidence in acquiring an electric vehicle, because nobody wants to be stranded on the road. Compared, Costa Rica has 240 charging locations, but Nicaragua is a larger country, and will need more charging sites, that could be located in restaurants, offices, shopping centers, or in the buyer’s home”, he insisted.

The CEN celebrated the initiative of the Law because “Nicaragua requires technological investments that contribute to the promotion of more efficient means of transport, and thus promote the development of electric mobility, as a necessity in the adoption of responsible consumption models.”

For this reason, they supported the application of tax benefits, “through the exemption of taxes defined in the bill, which favor direct investment in technology, and the acquisition of models of electric vehicles and batteries for storage.”

While the deputies of the regime know the content of the law, and waiting for the changes that could be made, “in Nicaragua there is no official importer of electric vehicles. Enatrel announced that it had imported two electric vehicles. Apart from this, nothing else is known…”, said Gabriel Pasos, representative of the Energy Committee of the Federation of Chambers of Industry of Central America and the Dominican Republic (Fecaica).

“There is no known national strategy or law initiative on electric mobility. The Ministry of Energy only announced the purchase of the two vehicles. The information for businessmen is limited”, said Stephanie Torres, also from the Fecaica Energy Committee.

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