Proposed bill on Motor Vehicle imports: What it means to the economy

By William Ojonyo

The news that the president had declined to assent to the proposed bill to have a blanket excise duty of Sh150,000 and Sh100,000 respectively for used motor vehicles less or more than three years from the date of first registration was received with a sigh of relief.

Unfortunately the highlight of this recommendation only paints a worse case scenario on the outcome of the proposals by the president.

To have used cars of below and above three years pay Sh100,000 and Sh200,000 respectively is not only going to push the cost of importing low end vehicles beyond reach to the middle class, but will in the contrary reduce the amount of revenue collected in form of tax.

Let’s analyze two examples of used cars over three years to emphasize my observation; For a Toyota Passo, it costs the tax payer or importer in the current regime duty @ 20% excise would be as follows: Customs value of Sh194,212, duty @ 25% – 48,553, excise @ 20% – 48,553, Vat @ 16% – 46,611, total collection by KRA would be 154,106 inclusive of registration.

KRA calculates taxes on a basis of 25% import duty, 20% excise duty and 16% VAT, the customs value against which these calculations are done depends on the type of vehicle. In the case above the customs value is 194,212.

In the proposed bill ,the same unit would cost duty @ 25% – 48,553, excise @ KES 200, 000, Vat @ 16% – 70,843, total tax including Railway Development Levy (what’s this?) and registration would amount to KES. 329,343 up from the initial KES 154,106.

On the other hand a Land rover discovery with a customs value of Ksh. 1,144,828 that is also over three years old.

Import Duty @ 25% – ksh. 286,207
Excise duty 2@ 20% – ksh. 287,207
Vat @ 16%- Ksh.274, 759
The grand total, including registration is KES 920, 103

In the proposed blanket excise of 200,000 on units over three years the same unit would pay:

Import Duty @ 25% – 286,207
Excise Duty @ 200,000
Vat @ 16%- Ksh. 260,966
Grand total, including registration amounts to KES 767, 173 down from 920,103

From the above statistics, only one thing is clear; the bill targets to throw out the low end used car importers and instead protects the high end car importers.
We all know that Kenya’s economy is driven by the middle class who incidentally fall under the low end car users category. As such, making the vehicles affordable for the high end, also called super rich, at the expense of the middle class is quite insensitive.

The ripple effect is that the otherwise affordable used cars purchased by the middle class will cost them more, making imported vehicles beyond their reach. The impact of this is far reaching with the customs agents also being affected, along with other dependants in the logistics and supply chain management sector.

(William Ojonyo is the MD Keynote Logistics Ltd)

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