Kenyans cut spend on car imports by Sh9bn on high tax

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Value of vehicles shipped in fell to Sh25.8bn in the period to May from Sh34.9bn due to new levy in December.

Kenyans cut spending on imported vehicles by Sh9.1 billion in the year to May, underlining the impact of tax measures that made cars below Sh1 million more expensive.

Official data shows that the value of vehicle shipped into the country dropped to Sh25.8 billion in the period to May, down from Sh34.9 billion in a similar period last year — reflecting a drop of 26 per cent.

Motor dealers have attributed the cutback to reduced demand for vehicles as a result of tax measures introduced in December that made cars below Sh1 million more expensive.

The majority of Kenyans import used cars of below Sh1 million. Units of cars imported dropped to 25,953 in the first five months of the year from 35,224 in a similar period a year earlier.

“The change of excise duty regime in December was punitive to cheaper second hand cars and shook the market,” said Charles Munyori, secretary-general of Kenya Auto Bazaar Association.

The price of popular models such as Toyota Belta shot to nearly Sh1 million with the December taxes, he added.

The Treasury last month abandoned the flat rate duty of Sh200,000 for vehicles older than three years and Sh150,000 for newer ones introduced in December, in favour of the previous 20 per cent levy of the car’s value.

The cost of Toyota Belta has dropped to about Sh850,000 with the re-introduction of the 20 per cent duty, says Mr Munyori.

READ: Cars valued below Sh1m to cost less after duty cut

The introduction of the flat rate in December was criticised after it effectively raised the prices of small vehicles popular with the middle and lower income classes while reducing the cost of fuel-guzzlers.

Vehicle registrations including used cars dropped to 26,290 units in the first four months of the year, down 43,861 in a similar period last year.

New vehicle sales dropped 30.2 per cent in the first six months of this year to 6, 946 cars, weighed down by higher interest rates.

Most buyers of new vehicles, such as light commercial trucks, rely on asset financing facilities by banks and interest rates were as high as 24 per cent during the period.

Kenya’s car market is dominated by low-priced second-hand imports from countries such as Japan, but investors monitor new car sales to gauge the health of the economy.

Sales were not expected to pick up soon due to political uncertainty over an election set for next August and a new 20 per cent excise duty on new vehicles imposed by the Treasury last month.