Base price review pushes up prices of second-hand cars
Imported cars awaiting clearance. Buyers and importers of used cars will have to dig deeper into their pockets to acquire some models after the taxman released a new list of base prices used to calculate import duties, raising their cost by double digits. FILE
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Importers have in turn adjusted prices upwards by between Sh50,000 and Sh200,000, leading to a sharp jump in display yards after dealers factor in their mark-ups.
Used cars generally attract an import duty of 25 per cent, excise duty of 20 per cent and valued added tax of 16 per cent, payable cumulatively and in that order. Pick-up trucks, lorries, trailers and prime movers are exempt from excise tax.
The second-hand car market is dominated by individuals and small dealerships who have benefited from increased demand from the middle class who buy the models in cash or through bank loans.
Buyers and importers of used cars will have to dig deeper into their pockets to acquire some models after the taxman released a new list of base prices used to calculate import duties, raising their cost by double digits.
The reference prices for some Toyota Prado, Honda Accord and Honda Civic, among other models, rose by between 10 and 20 per cent effective June 1.
Importers have in turn adjusted prices upwards by between Sh50,000 and Sh200,000, leading to a sharp jump in display yards after dealers factor in their markups.
“The most affected are sports utility vehicles and all Honda models,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association.
The Kenya Revenue Authority (KRA) publishes a list of current retail selling prices for close to 2,100 cars to help importers of second-hand cars compute taxes due.
The last such current retail selling price (CRSP) list released in April last year has been updated this month, with significant changes to some models’ base prices. Importers are, thus, incurring higher absolute taxes to ship in these cars.
“KRA has factored in the prices of the latest models in the market and this has had an impact on imports of similar or related second-hand models,” Mr Munyori said.
Used cars generally attract an import duty of 25 per cent, excise duty of 20 per cent and valued added tax of 16 per cent, payable cumulatively and in that order. Pick-up trucks, lorries, trailers and prime movers are exempt from excise tax.
The value of a car is calculated based on the CRSP for that specific model, adjusted for depreciation at a rate of 10 per cent per year. Insurance and freight charges are added to the adjusted CRSP to arrive at the customs value.
Because imports of used cars are capped at eight years from the date of manufacture, most importers ship in seven-year-old models as they attract the lowest taxes.
The latest CRSP changes will hit buyers of SUVs, Honda vehicles and certain other models that have recently been updated by pricier versions. Reference prices for some variants of the BMW X3, for example, have been adjusted to reflect the current retail prices of costlier models with similar specifications.
A 2.5 litre Honda Accord running on petrol and manufactured in January 2007, for instance, will now attract taxes amounting to Sh421,896. This will bring the total cost of the car to Sh975,202 based on the effective customs value of Sh553,306 used to compute the taxes.
This represents a 10 per cent jump in the total cost from the Sh886,547 — including Sh383,542 in taxes — that one would have paid before June 1.
Mr Munyori said the higher CRSP slapped on Hondas is linked to the return of the brand’s formal dealer in Kenya last year.
KRA collates various pieces of information to determine the CRSP, including manufacturer’s factory price and the prices set by local new vehicle dealers. The re-entry of Honda into the Kenyan market has, thus, fed new pricing information to the taxman, a move that saw the benchmark price for all Honda models jump 10 per cent.
In absolute terms, the CRSP has increased by a range of Sh229,700 to Sh529,390. The average benchmark price for a Honda is now set at Sh4.1 million up from Sh3.8 million.
An importer of a three-litre Toyota Land Cruiser Prado running on diesel and made in the same year will now pay taxes amounting to Sh597,274, bringing the total cost to at least Sh1.3 million. This is a 17.8 per cent rise from the older regime when the total cost would have been Sh1.1 million, including taxes of Sh506.7 million.
The higher taxes have been linked to the introduction of new and pricier Prado models with similar specifications, a move that saw the taxman raise the CRSP for the car by up to 28.9 per cent to Sh6.2 million.
The taxes charged on used cars average 40 per cent of the total cost of the units, making the levies a major determinant of the final yard prices that includes markups of up to Sh200,000.
An analysis of the new CRSP shows that large SUVs, Honda, and certain models of Toyota such as the NZE, are the most affected by the higher tax burden. This is expected to inject fresh dynamics in the used car market as models whose CRSP has remained unchanged gain a competitive edge at the price-sensitive bazaars.
Most second-hand cars are purchased by the middle class, comprising young professionals and owners of small businesses who seek an alternative to the higher prices charged by new auto dealers.
The second-hand car market is dominated by individuals and small dealerships who have benefited from increased demand from the middle class who buy the models in cash or through bank loans.
This has seen sales of used cars record the fastest growth in the entire vehicle market, making up over 90 per cent of total cars sold in the country.
Total car sales peaked at 65,005 units last year, with used imports taking the lion’s share. This was up from 52,847 units sold in 2012, with last year’s sales representing a growth of 23 per cent. Sales of new vehicles, including cars and trucks, stood at 14,542 units last year.
