A multi-agency meeting on ease of doing business held in Mombasa on April 14 and co-chaired by Trade Cabinet Secretary Trade Moses Kuria and his Transport counterpart, Kipchumba Murkomen, resolved “to streamline and introduce bonded warehouses for imported used vehicle inspection”.
The move is part of the Ruto administration’s plan to ease the cost of doing business in Kenya with the Port of Mombasa being a key node in trade for the seven-nation East African Community bloc.
So what does the proposed switch of inspection to bonded warehouses mean? BD attempts to break down how the resolution will impact the used motor vehicle dealers and importers.
This is a premise licensed by the Kenya Revenue Authority every year where goods whose tax payment is pending are deposited.
The bonded warehouses are owned by private companies but are kept under lock and key with permission to access them only granted by a KRA customs officer.
Where are bonded warehouses located?
The premises can be located anywhere. This can be at the Port of Mombasa or any other place, but admission and release of goods from the warehouses is controlled by KRA.
For example, there are cases where new car dealers have bonded warehouses in their showrooms where the units are stored, handled and may undergo some modifications before being put on the market. But access to the room is controlled by KRA.
What happens presently when a dealer or individual imports a used motor vehicle?
Second-hand motor vehicles are inspected at the container freight station (CFS). Dealers or individuals are required to clear all import duties and remove the vehicles within a month from the CFS.
Failure to evacuate prompts the KRA’s commissioner for customs to give them a month’s notice to clear the cars or risk the vehicles being auctioned.
Indeed, every week the KRA issues a month’s notice to owners of the overstayed cargo, including secondhand motor vehicles, to pay up and clear them or face the hammer at a public auction.
What will change in the proposed arrangement?
It means the secondhand cars will be deposited in bonded warehouses from where inspection will be conducted as opposed to CFS.
This means the inspections of the secondhand vehicles will be done from the same premises as new motor vehicles currently.
What is the advantage of the vehicle being deposited in a bonded warehouse as opposed to CFS?
Import duty on secondhand motor vehicles in a bonded facility will be paid on removal from the premises.
The bonded warehouses are allowed to store the used cars initially for six months pending payment of duty.
The importers or individuals can, however, apply to the KRA to extend the period to another six months or any other period which is at the discretion of the Commissioner for Customs.
This means the goods may be held at the bonded facility for a year or more before the import duty is paid provided the KRA gives the green light.
Car dealers, especially those in cross-border businesses, use the facilities to hold the used vehicles while they source for customers in the neighbouring countries.
How will the new shift benefit a buyer of a second-hand car in terms of pricing?
Kenya Auto Bazaar Association and Car Imports Association of Kenya argue that suspension of payment of import taxes, including value-added tax and excise duty, will free up cash and enable dealers to order used motor vehicles in larger volumes.
The large volumes of imports have the potential to lower the prices of vehicles, they argue. It also helps them manage their stock better by replenishing the units in time and avoiding delays which are prone to cargo imported via sea.
What are the challenges in the administration of the bonded facilities?
Authorities have in the past complained of issues in the administration of bonded warehouses. They have cited loss of revenue and misuse of duty suspension window by dealers.
This is by requesting and obtaining permission to extend the time of keeping warehoused goods, including cars, in the bonded premises.
In fact, in 2020 the KRA invoked Regulation 64 (k) of the East African Community Customs Management Regulations to legally exclude largely high-value goods like second-hand vehicles and fast-moving cargo from deposition in bonded warehouses through Gazette Notice No. 3350.
That notice move was, however, reserved in April 2021 Gazette Notice No. 3738 following complaints that Kenya was impending cross-border trade.
So, has the law always excluded used cars from storage in bonded facilities?
Although second-hand vehicles are listed among dutiable goods to be kept in bonded warehouses following the revocation of Gazette Notice 3350 of 2020, dealers say the KRA has put restrictions on them and only allows importers of new cars to enjoy the deferred tax benefits.
They say they were stopped from using bonded facilities in 1992.
