Car prices jump after Uhuru okays new tax

Car prices have jumped by up to more than Sh1 million following the introduction of new taxes for motor vehicles with engine capacities exceeding 1.5 litres.

Excise duty, one of the biggest taxes levied on motor vehicle imports, increased up to 35 percent effective Thursday after President Uhuru Kenyatta signed the Finance Bill into law.

This has increased the prices of both new and used cars, trucks and buses, with taxes taking more than half of the vehicles’ retail costs.

Vehicles attract an import duty of 25 percent, excise duty (now ranging from 25 percent to 35 percent) and value added tax of 16 percent, payable cumulatively and in that order.

According to changes brought through the Finance Act 2019, vehicles running on petrol and with engine capacities of more than 1.5 litres now attract excise tax of 25 percent compared to the previous 20 percent.

Similar vehicles running on diesel will now pay excise duty of 35 percent compared to the previous 30 percent that applied on models exceeding 2.5-litre engines and 20 percent on smaller cars.

Excise duty on fully electric cars has meanwhile been halved to 10 percent in a bid to encourage use of cleaner transport.

New and used car dealers say the tax changes has raised the cost of cars by between tens of thousands to more than Sh1 million, prompting a rise in retail prices by an equivalent margin.

“These are substantial tax hikes. Newer models are the hardest hit,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association– which represents used car dealers.

New vehicles have seen the highest price increments compared to second-hand imports whose value is depreciated according to their age before computation of taxes.

Total taxes on diesel-powered Isuzu double-cab pick-up trucks, for instance, have jumped by more than Sh500, 000, according to the Japanese commercial vehicle dealer Isuzu East Africa.

Used car dealers on the other hand estimate that total taxes payable on a seven-year-old Toyota V8 running on a 4.6-litre diesel engine now stand at Sh2.1 million compared to the previous Sh1.9 million, a rise of Sh190,711.

Duties on a 1.9-litre Mercedes E200 of the same age using petrol are now at Sh1.1 million, having risen by Sh123,235 from the previous Sh1 million.

An importer of a 1.8-litre Toyota Premio, which is seven-years old and running on petrol, will pay total taxes of Sh452, 338, up from Sh405, 385.

Taxes on new and expensive luxury vehicles such as Range Rover, Porsche Cayenne, Bentley and Jaguar and heavy-duty trucks like Mercedes Actros, Renault and Scania will see the largest absolute increases in levies exceeding the Sh1 million mark, dealers say.

The differentiated tax model was introduced to make the rich pay more with the government saying the previous uniform excise duty rate of 20 percent did not take into account the motorists’ divergent incomes.

This is the latest in the excise tax that the government has been using to make the rich pay more.

Some of the older tax measures were even more punitive and were overturned after protests from various stakeholders.

The duty was changed from 20 percent to a flat rate of Sh150, 000 on new to three-year-old vehicles and Sh200,000 for older models in 2015 when the tax also roped in local assemblers.

The move resulted in imports of luxury cars enjoying lower taxes while the duty on small cars rose significantly, resulting in regressive taxation. The levy went back to 20 percent the next year when local assemblers also won back their exemption, which they said is their main incentive.

It was again revised in 2018 when the tiered system was introduced (30 percent excise tax on petrol-powered vehicles with engines exceeding 2.5 litres and diesel versions exceeding three litres).

That system has again been tweaked with the latest changes being part of wider measures to collect more revenues amid widening budget deficits. Car owners could get a reprieve in coming months after the High Court last month ordered the Kenya Revenue Authority (KRA) to review the price list used in computation of taxes within 12 months.

The taxman has been using price quotations from dealers of new vehicles such as Toyota Kenya as the basis for calculating import duties and other levies on second-hand cars shipped in from overseas markets.

Used car dealers argued in court that the starting quotations, known as current retail selling prices (CRSP), are inflated and therefore result in unfairly higher taxes running into millions of shillings for those dealing in used imports.

Increased taxation risks slowing down motor vehicle sales which are yet to recover the sales peak of 107,761 units recorded in 2015.

Data from Kenya National Bureau of Statistics (KNBS) shows that sales of both used and new vehicles increased 12 percent to 102,036 units last year compared to 91,071 units the year before.