Starting January 1 next year, the value-added tax (VAT) exemption applied to the import and sale of hybrid and electric passenger vehicles will expire, APA-Economics reports.
No proposals have been submitted to amend the Tax Code in this regard. It is only known that starting from 2026, a VAT exemption will be applied to electric buses imported and sold by residents of industrial parks for the purpose of industrial production (assembly).
This exemption will apply only to fully electric buses without seats, handrails, or installed monitors.
Note that VAT is an 18% indirect tax imposed by the government on goods and services. Although it is paid into the state budget, the burden ultimately falls on the consumer, as VAT is directly included in the product’s sale price.
Thus, from 2026, the reinstatement of VAT will increase the production cost of green vehicles. This will create a new price reality for both importers and buyers, resulting in a certain rise in the prices of hybrid and electric vehicles.
Chronology of previous exemptions
According to the Tax Code of the Republic of Azerbaijan, starting from January 1, 2019, the import of vehicles powered solely by electric engines was exempted from value-added tax (VAT). Later, in 2022, this exemption was extended to both the import and sale stages. That same year, the import and sale of hybrid vehicles were also exempted from VAT. Additionally, under Decision No. 411 of the Cabinet of Ministers dated November 11, 2022, the customs duty on electric vehicles manufactured within the last three years was reduced from 15% to 0%.
Tax differences between hybrid and electric vehicles
With the abolition of the VAT exemption, one of the most discussed issues among both importers and buyers is how much the prices of hybrid and electric vehicles will increase. To understand the exact amount of the price rise, it is enough to look at simple calculations. The following examples clearly show how these changes will affect actual import costs.
Example 1: An individual imports a hybrid vehicle
Let’s assume that an individual imports a 2024 model hybrid car with a 2,500 cc engine. The customs value of the vehicle is 40,000 manats.
According to the regulations in effect until 2025, such a vehicle was subject to 5,100 manats in customs duties and 3,100 manats in excise tax. Since the VAT exemption was in force, no additional tax was charged, and the total cost, including other fees, amounted to approximately 48,445 manats.
Under the new regulations, however, the same vehicle will be subject to the same 5,100 manats in customs duties and 3,100 manats in excise tax, plus 245 manats in other fees, and VAT will also be applied. The VAT amount will total 8,681 manats. As a result, the total import cost of the vehicle will rise to 57,126 manats. In other words, the price of the hybrid vehicle will increase by about 8,681 manats, or roughly 18%.
Example 2: Individual imports an electric vehicle
An individual imports an electric vehicle worth 40,000 manats, manufactured in 2024. These vehicles are exempt from customs duties and excise taxes, and until now, VAT has not been applied. Therefore, the total import cost of the vehicle, including other fees, was approximately 40,245 manats.
However, starting from 2026, an 18% VAT will be reinstated on the sale and import of electric vehicles. Consequently, around 7,200 manats of VAT will be charged upon import, increasing the total price of the vehicle to 47,445 manats. Thus, for an individual, the cost of the electric vehicle will rise by 7,200 manats, or 18%.
The first example compares the taxes and duties applied during the import of a hybrid vehicle, while the second illustrates the case of an electric vehicle. These calculations show that starting from 2026, importing the same model of car will become significantly more expensive than before.
It should be noted that in the 2026 state budget, VAT revenues from the import of goods into the territory of the Republic of Azerbaijan are projected at 4.75 billion manats, which is 182 million manats more than the current year’s forecast.
For reference, in 2024, Azerbaijan imported 3,027 electric vehicles worth 121.6 million USD and 26,197 hybrid vehicles worth 679.5 million USD.
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