You have previously noted that the average age of cars in Kenya is well above 10 years – nearly three times the average age in more affluent markets. Will that ever change?
There is an age limit of eight years on used vehicles entering Kenya. That is the law – specific and exact. About 90 percent of car imports are used vehicles.
Now there is nothing magical about the number eight, nor anything mysterious that suddenly happens to vehicles when they get to be more than 2,922 days old. Some are decrepit at less than half that age; others are still in good order when they are more than twice that old.
But usually, on average, in general, the older a vehicle is the more mileage it has done and the worse state it is in. An eight-year old has lived half its design life. The better half. And what the law is trying to address is this:
Kenya’s personal mobility and commercial transport require many more vehicles. Used imports can meet this demand, quickly, at relatively low up-front cost (although there are longer-term operational and maintenance penalties).
As a stop-gap measure (we’ve been doing it for 32 years now) this source of supply can satisfy consumer appetite and be viable for the economy…as long as the used imports are in good condition with plenty of residual life left in them. But consumers will be ill-served and the economy will be severely damaged if the used imports are worn-out junk when they first arrive (inefficient operation, downtime and repair costs will far outweigh purchase price savings). At the same time, the availability of used cars from cheap sources with low duty burdens has torpedoed demand for more expensive cars with higher duty charges, and has doubled (!) the rate of depreciation of new cars.
Therefore, if policy opts to allow used imports (there are strong arguments both for and against) it must at least encourage the choice of good quality units and discourage (or prevent) the importation of junk. Somehow, somewhere, a line must be drawn to distinguish good from bad. And some countervailing concession/encouragement should be offered to new vehicle buyers who are investing their own money in a long-term asset to the national fleet.
The rational way to do that would be to inspect every used import, one at a time, against a tough technical standard and to accept those which pass and reject those that fail. In theory, if the test was thorough, that would be a very fair and effective way to achieve the quality objective, balance the market, and lower the average age of the national fleet. An economic benefit.
In practice, conducting a thorough test on 300 or more vehicles per day would be technically demanding, logistically cumbersome, time-consuming and expensive, and it would be fraught with loopholes for corruption – whether conducted at pre-shipment source or on arrival in Kenya. And if the inspection was conducted after vehicles had been shipped to Kenya, ensuring the re-export of rejects would be a nightmare.
So instead, Kenya has opted to draw the line on age. While the 8-year limit is somewhat arbitrary (why not 5, 6, 7or 9 years?) it is not an aberration. It is the age at which mitumba vehicle prices plunge in their main source market. Vehicles do deteriorate with time and usage – used car market values the world over are based on age and mileage.
Age limits offer a quicker, simpler, cheaper sort-of quality control benchmark than inspections. The principle is reasonably sound. But they do throw up anomalies, and are also wide open to fraud and corruption.
The hard fact is that neither age limits nor MoT inspections will work optimally. Happily, there is another much quicker, much surer way to encourage quality and deter rubbish. It is this:
Ignore age altogether! Ignore condition! Let dealers and owners bring in anything they like, from wherever they like, at whatever bargain price they can manage. Not even valuations and proof-receipts are necessary, because there is no need for duty and VAT at all. For global customs compliance, charge those. At a rate of zero percent. Then…
…set a flat rate Vehicle Import Tax on each class of vehicle, payable before it leaves the port or gets a number plate. The same fixed sum, whether the vehicle is brand new or at death’s door.
Say, for the sake of argument, a tax of circa Sh400,000 on any passenger car – brand new or used – under 2 litres. Nobody would pay that on a heap of worthless junk, so nobody would import a heap of worthless junk. Problem solved.
Much faster, surer import processing at near zero admin cost.
No complex valuations or discretion so no loopholes for corruption.
No age limit or depreciation, so no purpose for corruption.
Lots of revenue (hundreds of millions per day).
Easy to audit. Count the number of vehicles; count the money. Tally?
No anomalies. No exceptions.
Natural and healthy market forces would take care of all the quality objectives, without any official system or interference at all. Dealers and individuals could still get vehicles from the cheapest possible source, but they would import only vehicles of good quality and condition, because junk plus flat-rate tax simply would not sell. At a universal flat-tax rate, demand for new (or newer) units would proportionately soar.
The real problem is not the age limit on imports. It’s the age-depreciation system, which completely contradicts the “quality” objective with a duty regime that says “the older the better” (cheaper).
Newer vehicles in good condition are better for Kenya than older vehicles in poor condition. So why give the tax advantage to the vehicles you don’t want?
The spin-off benefits include that anyone who can afford the flat rate tax can probably afford to maintain the car properly; all these units would progressively be sold into the local used car market (usually more than once) so “affordable” cars would still be available in all price ranges, and the jua kali jalopy service industry would not suffer job losses.
