Economy

KRA says unequal treatment of car importers lawful

cars

Second hand cars being offloaded from a Cargo Ship at the Port of Mombasa on 7th July 2021. FILE PHOTO | NMG

Summary

  • The taxman has dismissed a claim by a section of car importers that its demand for registration of imported used motor vehicles before entry at the point of clearance amounts to discrimination.
  • In its submissions to a petition by the Car Importers Association of Kenya (Ciak), the Kenya Revenue Authority (KRA) says unequal treatment between the association members and franchise importers is lawful.

The taxman has dismissed a claim by a section of car importers that its demand for registration of imported used motor vehicles before entry at the point of clearance amounts to discrimination.

In its submissions to a petition by the Car Importers Association of Kenya (Ciak), the Kenya Revenue Authority (KRA) says unequal treatment between the association members and franchise importers is lawful.

Ciak is challenging a requirement that compels its members to have their vehicles assigned registration number plates at the point of clearance as opposed to when selling to a buyer.

The association says that franchise importers ship in their new motor vehicles under the warehousing regime while Ciak members import under home use hence the difference.

“The East Africa Community Customs Management Act provide that subject to any regulations, goods liable to import duty may upon first importation be warehoused without payment of duty in a government or bonded warehouse,” KRA said.

It argues that the Traffic Act is clear that no vehicle imported for home use shall be used on the country’s roads unless it has been registered, which registration can only be effected once duty has been paid.

It says that second-hand vehicles had been listed as part of the goods that were not eligible for warehousing meaning that they must, on first importation, be entered for home consumption and applicable taxes paid.

“In considering the decision not to allow warehousing of second-hand vehicles, it took into account Kenya Standard Code of Practice for the Inspection of Road Vehicles,” says KRA which has also sued National Transport and Safety Authority (NTSA).

It says that given that Ciak members import used vehicles that have adverse effects on the environment, the state has put mechanisms to ensure that it complies with the constitution and international treaties hence the difference in treatment between franchise holders and used vehicles importers.

KRA also says that the Ciak members are treated preferentially compared to franchise importers as they (Ciak members) at the time of entering the vehicles for home use are allowed to depreciate them, computed from the year of manufacture before taxes are levied.

On the contrary, KRA says, when franchise dealers enter the motor vehicle for home use, even if it is after a period of six or seven years, they are not allowed to depreciate the value and are charged taxes according to the first account taken at the time of warehousing.

It also argues that other than Ciak and franchise dealers importing vehicles under different regimes, they also import them of different ages.

“Whereas Ciak members import used vehicles, franchise importers import new vehicles, the argument of being disadvantaged by getting older registration numbers does not arise,” argues KRA.

In its petition, Ciak argues that it is being discriminated upon on the basis that dealers in imported new vehicles (franchise dealers) install car number plates at the point of the sale of vehicles to buyers.

Ciak argues that franchise dealers are not required to pay customs and excise duties before them procuring buyers and that duty is paid and vehicles registered at the point of sale to the end-user.

The association says that despite its members being required to pay applicable revenue before clearing the vehicles, they are required by KRA and NTSA to register them before exiting the taxman’s customs holding areas.

Ciak wants a declaration that KRA and NTSA have violated the constitution regarding the requirement that importers of used motor vehicles install number plates upon clearance, but prior to the use on the roads, amount to a violation.

It says that prior to 2009, its members were allowed to clear their imported used motor vehicles from customs area without having registration number plates but based on them bearing Kenya Garage (KG) number plates enabling the vehicles to be taken to their showrooms.

“However, the arrangement was withdrawn as against Ciak members but was left intact for the franchise dealers in imported new vehicles,” the petition states.

Ciak also wants a declaration that the decision to have them register their vehicles prior to leaving customs areas is null and void for want of legality and compliance with provisions of the constitution.