The government is set to exempt locally assembled passenger cars from VAT and excise taxes, a move that could see prices of the automobiles fall by hundreds of thousands of shillings.
This will see the cars exempt from the entire major taxes that are applicable on fully-built units imported from overseas markets like Japan, the UK, and South Africa.
Cars manufactured abroad are charged an import duty of 25 percent, excise duty of 20 percent, and VAT of 16 percent, payable cumulatively and in that order.
Assemblers of passenger cars such as Simba Corp (producer of Proton cars) and DT Dobie (Volkswagen) currently enjoy exemption from the 25 percent import duty.
“In order to encourage more investment, especially in the manufacture of passenger motor vehicles locally, I propose to exempt from VAT inputs and raw materials used in the manufacture of passenger motor vehicles,” Treasury secretary Ukur Yatani said in his budget speech.
“Additionally, I propose to exempt locally manufactured passenger motor vehicles from VAT.”
Mr Yatani also proposed to exempt assemblers of passenger cars from excise duty, noting that this will see them treated equally with producers of commercial vehicles who already enjoy the waiver.
Removal of VAT on inputs and raw materials is expected to benefit suppliers of assemblers including manufacturers of paint, steel, and upholstery.
Players in the industry welcomed the move, saying it will encourage investment in local assembly.
“This is a very positive thing as it will make cars cheaper for ordinary people,” said Adil Popat, the executive chairman of Simba Corp.
Others not already in the passenger assembly business said it will encourage them to start local production.
“This is a major incentive for us to start local assembly of our SUV (Isuzu mu-X) as it will be cheaper compared to importing,” said Rita Kavashe, the chief executive of Isuzu East Africa.
Isuzu assembles commercial vehicles such as buses and pick-ups but has been importing the sport utility vehicle –its only offering in the passenger car category.
The major assembly plants are Nairobi’s Isuzu, Mombasa’s Associated Vehicle Assemblers (owned by Simba Corp), Thika’s Kenya Vehicle Manufacturers (owned by the government, DT Dobie and CMC Holdings).
Sales for locally assembled vehicles rose to a record 70.6 percent of the total sales in 2021, moving 10,054 units compared to 4,195 units of fully-built imported vehicles.