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Economy

VAT cuts motorcycle sales by a third as prices increase

Boda bodas in Vihiga. Motorcycle sales have dropped in recent months. Photo/FILE
Boda bodas in Vihiga. Motorcycle sales have dropped in recent months. Photo/FILE 

Sales in Kenya’s once-booming motorcycle business have shrunk by a third in the two months to February, hit by the rising cost of bikes following introduction of value added tax (VAT) in September.

Data from Kenya National Bureau of Statistics shows that 17,156 motorcycles were registered in the first two months of the year, compared to 25,983 units in the same period a year earlier, representing a 33.9 per cent drop.

Dealers attribute the drop to expensive motorcycles after the government introduced a 16 per cent tax on the two-wheelers.

“The levy (VAT) is a reflection of the higher prices of motorcycles, which could be a pointer to the drop in sales,” said Jerry Midiwo, an executive at Honda Motorcycle Kenya.

Car & General says the price of TVS bikes has increased to Sh98,000 from Sh85,000 before the VAT came into effect.

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Yamaha Kenya, which is a unit of Toyota Kenya, is the other mainstream player in the market dominated by importers of cheaper brands from China and India commonly used by boda boda operators.

The cheap imported bikes used to retail at an average of Sh60,000 mid-last year, but have since risen to Sh75,000.

Kenya enacted the value added or sales tax in September, slapping taxes on items including books and sending the retail price of various items higher and pushing inflation to a 15-month high.

Annual demand for motorcycles in the country increased from 16,293 units in 2007 to 140,215 in 2011 and 125,058 last year on the increased use of the bikes in public transport.

Dealers attribute the jump to the removal of the 16 per cent VAT on bikes with an engine capacity of less than 200 cc in 2007 that lowered prices.

The VAT burden has added pressure on the dealers who already pay 25 per cent duty on fully-built imported bikes and 10 per cent on kits used for local assembly.

The Kenya Revenue Authority has since September registered about 7,000 bikes per month compared to an average of 11,000 in the first half of last year. This is set to jolt the boda boda business that has in recent years created thousands of jobs, especially in the rural areas.

The drop is also set to hit Honda and Car & General. Both dealers opened assembly plants in Nairobi to gain a larger share of the motorcycle market that is dominated by brands from China and India.

The Honda plant has an initial production capacity of 25,000 units per year.

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