Cars valued below Sh1m to cost less after duty cut

Cars valued below Sh1 million will now cost less after the government revised the formula used to calculate excise duty in a review that will make fuel guzzlers more expensive.

Treasury secretary Henry Rotich Wednesday announced that the State had abandoned the current duty of Sh200,000 for vehicles older than three years and Sh150,000 for newer ones, in favour of a 20 per cent levy of the car’s value.

The introduction of the flat rate in December had been criticised with sector players saying that it effectively raised the prices of small vehicles popular with the middle and lower income classes while reducing the cost of fuel-guzzlers.

“This has been perceived to be unfair, inequitable and punitive to importers of vehicles commonly imported by low income earners but beneficial to importers of luxurious vehicles,” said Mr Rotich in his Budget speech for the fiscal year beginning July.

“In order to address the situation, I propose to amend the Excise Duty Act, 2015 to remove specific rate of duty and introduce ad valorem rate of 20 per cent based on the value of the vehicle.”

This will mean that those buying a car worth Sh1 million will pay excise duty of Sh200,000.

A used vehicle worth Sh800,000 will, for instance, be charged a levy of Sh160,000 based on the calculation of 20 per cent of its value as opposed to the current Sh200,000.

READ: Vehicle registration falls 34.5pc on new excise tax

Mr Rotich’s abandoning of the seven-month old formula will, however, see prices of cars valued above Sh1 million go up.

A vehicle valued at Sh4 million for example currently attracts excise duty at a rate of Sh150,000 or Sh200,000 based on the age. The new formula will, however, mean that buyers will now pay Sh800,000 for such a car.

The December shift in excise tax formula has seen a 34.5 per cent decline in the total number of vehicle registrations in the four months to April.

Data from the Kenya National Bureau of Statistics show that 51,434 vehicles were registered between January and April against 78,581 in a similar period last year.

The reversal announced by Mr Rotich will, however, have to await Parliament’s approval of the amendments to the Excise Act before car buyers can start enjoying lower prices.