Motor vehicle sales drop 22pc after Rotich’s excise tax charge

Locally assembled and imported used motor vehicles market shrank 22.4 per cent in the nine months to September as dealers grappled with last year’s imposition of higher excise taxes on cars.

Total vehicle sales in the period stood at 60,391 units compared to 77,902 the year before, according to data from the Kenya National Bureau of Statistics (KNBS).

The drop in sales is expected to translate to lower tax revenues besides limiting the creation of new jobs in the motor vehicles industry that retrenched 115 workers in the first five months of the year.

“Sales of small saloon cars were particularly affected by the excise tax,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, which represents used car dealers.

The Treasury last month removed excise tax on locally assembled vehicles and reverted to charging 20 per cent of a used imported vehicle’s value instead of the flat fee of Sh200,000 that the taxman has been charging since last year in the quest to reverse the decline in sales.

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Sales of second-hand passenger cars were the most affected following imposition of the flat excise tax that raised their retail prices by more than Sh100,000.

Small passenger cars such as Toyota Vitz, Toyota Belta and Honda Fit were hit hardest with the steep rise in excise duty.

Mr Munyori said the dealers expect the return of 20 per cent excise tax on used cars to lift sales in the coming months.

“Sales are picking up since the change in excise duty,” he said, adding that used car sales are expected to rise this quarter as exporters in Japan rush to clear their 2009 model stocks, which they will be unable to sell beginning next year.

All imported used cars must be eight-year-old or less.

New vehicle sales, which account for about 20 per cent of total motor vehicle sales, suffered more from the introduction of excise tax on locally assembled pick-ups, buses and trucks.

Sales in the new vehicles market fell 31.3 per cent in the review period in a market trend that dealers also blamed on economic slowdown.

Hurt industry

Data from the Kenya Motor Industry Association (KMI), the lobby for new vehicle dealers, shows that sales stood at 10,368 units in the nine months compared to 15,101 units the year before.

Major dealers, including General Motors East Africa (GMEA), Toyota Kenya and Simba Corporation, were among the biggest losers whose sales dropped by between 24 and 40 per cent.

“The excise duty hurt the industry,” said Dinesh Kotecha, a director at Simba Corporation, which sells Mitsubishi and BMW brands.

“We are also seeing an economic slowdown that has reduced demand for new vehicles.” he said.

The official GDP figures, he argued, are at odds with the industry’s order books.

The government last year introduced excise tax at a flat rate of Sh150,000 on locally assembled vehicles and increased the duty to 20 per cent of the vehicle’s value in June – raising prices of vehicles by 20 to 30 per cent.

Commercial vehicles, including pick-ups and trucks, account for over 70 per cent of Kenya’s new vehicle sales, underlining the impact of the tax in eroding demand as the duty inflated prices of some models by up to Sh1.2 million.

Toyota reported the largest sales drop of 39.9 per cent, moving 1,973 units in the review period compared to 3,285 units a year earlier. That performance, in turn, saw its market share drop to 19 per cent from 21.7 per cent, even as it retained its position as the second largest dealer.

CMC Holdings’ sales fell 39.2 per cent to 828 units, causing the dealer’s market share to drop to 7.9 per cent from nine per cent last year.

Simba’s sales dropped 31.2 per cent to 1,839 units although its market share remained unchanged at 17.7 per cent.

GMEA recorded a 24.4 per cent sales decline to 3,569 units but managed to grow its market share to a new high of 34.4 per cent from the previous 31.2 per cent, benefiting from a relatively lower sales drop.

GMEA’s chief executive, Rita Kavashe, said new vehicle sales are expectd to remain flat in 2017 from this year’s estimates of 14,000 to 15,000 units citing uncertainty related to the upcoming general election.

She described the recent capping of interest rates as a positive factor that allows individuals and corporate clients – who rely on bank financing to buy vehicles— to benefit from lower finance costs.

“The controlled interest rates should lift demand in the coming years,” Ms Kavashe said, adding that the current maximum lending rate of 14 per cent is highly favourable to borrowers, who in the past have paid rates of above 20 per cent, especially during negative economic cycles.

Some banks have, however, adopted a more cautious stance, cutting repayment periods and asking borrowers to pay a deposit for vehicle purchases.

The lenders’ increased conservatism is seen as a move to hedge against losses given that vehicles’ annual depreciation rates of 20 per cent to 25 per cent is now significantly above the 14 per cent lending rate.