Treasury scraps 20pc excise tax on locally assembled vehicles

The government has revoked the 20 per cent excise tax on locally assembled vehicles, offering relief to an industry that had started reeling from the imposition of the levy.

The Kenya Revenue Authority (KRA) started collecting excise taxes from Kenya Vehicle Assemblers (KVM), General Motors East Africa (GMEA) and Associated vehicle Assemblers (AVA) for the first time last year at a flat rate of Sh150,000 per vehicle.

The levy was last month raised to 20 per cent of a vehicle’s value, sparking protests from the assemblers who said the move had led to job cuts and reduced sales as prices of pick-ups, buses and trucks went up by between between Sh231,000 and Sh1.2 million.

“Excise tax on locally assembled vehicles has been removed,” Rita Kavashe, the chairperson of Kenya Motor Industry Association (KMI) said in an interview.

Ms Kavashe, who is also the chief executive of GMEA, said KRA dropped the tax effective Tuesday last week, an indicator that the Treasury had shelved the levy after lobbying by the assemblers.

Exemption of locally assembled vehicles from the levy is expected to be communicated officially through amendment of the relevant tax laws.

Assemblers said that while the law is yet to be amended, the taxman is currently implementing the exemption administratively after receiving applications to clear imports of completely knocked down (CKD) vehicles headed to assembly plants.

“We will continue to use this process awaiting the changes to the law,” said Dennis Awori, the chairman of Toyota Kenya which assembles its vehicles at the Mombasa-based AVA.

Locally assembled vehicles however still have to pay value added tax (VAT) at the rate of 16 per cent, introduced in 2013.

READ: New vehicle sales drop 29.1pc on tax rise, low demand

Assemblers, represented by the Kenya Association of Manufacturers (KAM), had argued that increased taxation had effectively wiped out the tariff and tax incentives that led to the establishment of assembly plants in the 1970s.

The firms said they had already retrenched 415 workers in the first five months of the year in response to a slowdown in business associated with the levies.

They argued that nearly 10,000 vehicle and motorcycle assembly jobs were at risk if the taxes were not repealed. Motorcycle assemblers, including Toyota which has the Yamaha brand, have however not been exempted from the excise tax set at the rate of Sh10,000 per unit.

“We will continue to lobby for the excise tax on motorcycles assembled locally to be removed,” said Mr Awori.

In a letter to Treasury Secretary Henry Rotich, KAM said the taxes had resulted in a 26 per cent drop in motor vehicle unit sales to 5,938 in the first five months of the year.

A similar margin of drop in sales value amounting to Sh2.5 billion was also recorded in the period.

Motor vehicle assemblers reported an average production decline of 30 per cent in the review period, leading to redundancies of 115 employees and capacity utilisation of just 20 per cent.

Motorcycle assemblers on the other hand have cut 300 jobs, reducing their staff count to 900 after production fell 47 per cent to 32,000 units.

This saw their capacity utilisation drop to 55 per cent from the previous year’s 80 per cent amid a 46 per cent decline in motorcycle sales to 30,634 units.