Kenya-assembled vehicles hit 10,000 units on tax incentive

General Motors staff assembles a motor vehicle at the firm’s plant on Mombasa Road. PHOTO | FILE
General Motors staff assembles a motor vehicle at the firm’s plant on Mombasa Road. PHOTO | FILE 

The number of locally assembled vehicles surpassed the 10,000 mark last year as vehicle dealers increased their output in a bid to lower their tax bills.

Data from the Economic Survey 2016 report released last week shows that production of cars, trailers and semi-trailers went up by 6.8 per cent in 2015.

“The number of assembled motor vehicles increased by seven per cent from 9,514 vehicles in 2014 to 10,181 vehicles in 2015. Similarly, production of trailers and semi-trailers increased by 13.2 per cent while that of motor vehicle bodies went up by 1.3 per cent,” says the survey.

The increased output comes on the back of incentives offered by the government to the assemblers.

Imports of parts used in local assembly are exempted from the 25 per cent import duty levied on assembled cars.

Kenyan motor vehicle assembly firms were last year guaranteed at least 40 per cent of the government’s annual car lease contracts, which could translate into lucrative deals for the firms that stand to get orders running into hundreds of units every year.

The government in 2010 adopted a policy of leasing motor vehicles instead of buying outright to trim heavy upfront acquisition costs and check mounting maintenance costs.
The State however leased nearly 3,000 vehicles in 2014, without discriminating on either locally assembled or imported units.

The Treasury last year said it would establish structures for motor vehicle fleet management to cover both leased and government-owned motor vehicles in the country.

“The move is expected to encourage motor vehicle assembling, support growth of backward and forward industries, boost secondary market of vehicles and generate additional employment opportunities,” stated the Treasury in the 2015/16 budget policy statement.

The Kenya Vehicle Manufacturer (KVM)—assemblers of CMC and DT Dobie’s trucks and heavy commercial vehicles such as the Nissan double-cab pick-ups, Land Rover, Mazda, Iveco, and Mercedes Benz, Toyota Kenya, Associated Vehicle Assemblers (AVA) and General Motors East Africa (GMEA) are among local assemblers who have been battling it out for the 40 per cent reserve.

The government leased 800 more vehicles for the National Police Service starting last July as it strove to strengthen security operations in the country. An additional 500 vehicles is expected to be leased later this year starting July.

The growing preference for local assembly is expected to create more jobs and reduce idle capacity among the three assemblers — Kenya Vehicle Manufacturer (KVM), Associated Vehicle Assemblers (AVA) and General Motors East Africa.

The move is also set to rev up job creation in the auto sector, which had been hard hit by cheap second-hand imports and concerns over their quality standards.

The local assemblers sighed huge relief last December, after the Treasury slapped a Sh200,000 excise tax on all vehicles more than three years old from the date of first registration and Sh150,000 for newer vehicles.

This adjustment replaced the previously existing 20 per cent excise tax based on a vehicle’s value, which was charged alongside customs and value added tax.

Thika-based KVM has in the past said that increased interest for local assembly is set to revive the fortunes of vehicle assemblers, but reckoned that Kenya was still far from hitting the peak levels experienced in the 1980s.

The firm was picked to assemble Mobius—the Kenya made car tipped as Africa’s cheapest.

The State leasing structure according to the Treasury is meant to ensure efficiency of government transportation.

The leasing programme is particularly expected to help the government expand the capacity of police officers to respond quickly and more effectively to reports of crime.