Ideas & Debate

Reprieve for car buyers as MPs cut excise duty by Sh50,000

Bd-Economy5

A truck transports imported cars on Mombasa Road in Nairobi. PHOTO | FILE

Parliament has handed used motor vehicle buyers some reprieve after reducing excise payable for imported second-hand cars by Sh50,000.

Boda Boda operators were also spared a rise in unit costs under the last-minute amendments to the Excise Bill 2015 that did away with a tax of Sh10,000 per motorcycle.

The Bill — before the amendments Thursday — had pegged the rate of excise on motor vehicles over three years old from the date of first registration at Sh200,000 per unit, while those under three years would have been charged a rate of Sh150,000.

“That is not good but it is better than before,” said Charles Munyori, secretary-general Kenya Auto Bazaar Association, Thursday.

Importers of second-hand cars will now be required to pay Sh150,000 for vehicles over three years old and Sh100,000 for those under three years.

“It is expensive to levy a car costing between Sh300,000 and Sh450,000 at Sh200,000. On the boda boda tax, the Departmental Committee on Finance, Planning and Trade agreed that it may impact negatively on the employment created by this sector,” said Subukia MP and vice chair of the Finance and Planning Committee Nelson Gaichuhie.

The Bill was on its third and final reading, meaning that it now only awaits signing into law by the President.

Following its publication in June, tax experts had pointed out that the Sh10,000 levy on motorcycles would have an effect on the thriving boda boda business, possibly pushing up transport costs as the prices of the motorcycles went up.

The change of taxation on vehicles into a regime based on age is meant to reduce carbon emissions, which is higher in older cars.

The new rates were based on the premise that older cars carry a higher depreciation rate than newer vehicles, and therefore encouraging importation of newer models would be less detrimental to the environment.

Second-hand motor vehicle dealers had opposed the new levy, saying it was designed to protect sellers of new car dealers.

“We are of the view that if the government is serious about environmental degradation they should introduce a levy across all sectors of the economy as we all contribute to pollution and should not single out imported second-hand vehicles as the only pollutants,” Mr Munyori had said in a statement following the publication of the Bill.

The impact of this change in excise will, therefore, be felt more by purchasers of low value motor vehicles as opposed to importers of high value vehicles, when one considers the tax as a percentage of the total value of the car.

Under the current tax regime, used cars are generally charged import duty at the rate of 25 per cent, excise duty at 20 per cent and value added tax of 16 per cent, payable cumulatively and in that order.

The Kenya Revenue Authority calculates the value of a car based on the current retail selling price (CRSP) for the model, adjusted for depreciation at the rate of 10 per cent per year. Insurance and freight charges are added to the adjusted CRSP to arrive at the customs value.