New taxes push cars beyond the reach of more Kenyans

Imported car dealers have increased prices by up to Sh330,000 for some units as they pass on new taxes and currency depreciation costs to consumers in what has pushed the popular models beyond the reach of more Kenyans.

A comprehensive analysis of the impact of the new taxes on prices has revealed that the actual taxes on imported second-hand cars have jumped by an average of 14.69 percent, outpacing the 10 percent import duty increment imposed by the William Ruto administration.

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The Kenya Revenue Authority (KRA) increased duty on imported cars to 35 percent from the previous 25 percent, setting the stage for the latest wave of price increments amid the weakening of the shilling.

The 10-percentage point rise on import taxes has also ended up increasing the other taxes on cars such as the excise duty and value added tax (VAT) as these taxes are loaded and paid cumulatively in that order.

The Kenya Auto Bazaar Association, which represents second-hand car dealers, said its members were bracing for further slowdown in sales due to higher prices.

The full impact on demand, the lobby’s secretary general Charles Munyori said, will likely be felt from September when most of the orders under the new taxation regime dock at the Port of Mombasa.

“What we see happening is that people are going to change their preferences because of higher prices. Some people who would have preferred to buy a Prado, for example, may decide to import a Nissan X-Trail,” Mr Munyori said.

“For importers, if you are bringing in 10 [Toyota] Harriers, you may cut it to seven because of the high costs.”

The shilling, which has lost more than 20 percent of its value in this year, and the increase in interest rates are making the cars even more costlier. Importing a V8 car, for example, costs around $70,000.

Bringing this luxury car at an exchange rate of Sh147 today would see a dealer cough up to Sh10.29 million. A year ago, at an exchange rate of Sh105, a dealer paid Sh7.35 million.

This means if you used to import 10 V8 cars, you now pay an extra Sh29.4 million.

The increased duty is part of the Ruto administration’s plan to raise Sh211 billion in additional revenue this financial year ending June 2024.

Calculations by second-hand car dealers suggest the total taxes on the cheapest units assembled in 2016 – the shipment they are largely bringing in currently based on the eight-year age limit – have risen by more than Sh330,000 for luxurious cars.

Importation of vehicles attracts excise duty ranging from 25 percent to 35 percent depending on the size of the engine, while the standard 16 VAT also applies.

Excise tax is charged on sum of landed cost of the car and import duty, with VAT applied on the resultant value.

The estimates show total taxes on low-priced Toyota Vitz manufactured in 2016 have gone up by Sh32,070 or 14.94 percent on the impact of increased duty to Sh246,709 per unit, excluding storage charges and registration fees.

This has pushed up the cost of an imported second-hand Vitz to more than Sh1.3 million.

The cost of a Mazda Demio, popularly with digital taxi operators, is also hovering around Sh1.3 million after taxes increased about Sh28,619, while the price of a Nissan Note has crossed Sh1.2 million after taxes went up Sh32,549.

The retail prices have factored in other costs such as foreign exchange rates and dealer’s margin, which is usually about 10 percent.

A newly imported Toyota VX model (4600cc engine capacity) manufactured in 2016, popular with lawmakers and corporate chiefs, is retailing at more than Sh14 million after taxes increased by Sh259,612 to stand at about Sh2.14 million.

The prices of Toyota Harrier (2000cc) and Nissan X-Trail (2500cc), which are popular with the middle class, have increased by Sh107,059 and Sh116,901, respectively.

Besides taxes, fully assembled vehicles shipped in from abroad are also charged import declaration fee and railway development levy at the rates of 2.5 percent and 1.5 percent of the customs value, respectively.

Motor vehicle dealers and assemblers had earlier raised car prices citing depreciation of the shilling, reduced imports of used units and rising borrowing costs.

Production of cars slowed down globally in the wake of the disruption caused by the Covid-19 pandemic besides shortages of semiconductors, which are a critical component in modern vehicles.

The shilling, on the other hand, has been weakening against the US dollar, losing about 16.4 percent of value since the beginning of the year.

The increased cost of operation had prompted the dealers and assemblers of new vehicles to adjust prices upwards to recoup the expenses and protect margins even before the duty on finished units was enforced.

New vehicles dealers, for example, posted a 12.5 percent drop in sales in the half year through June to 5,679 units, according to data from Kenya Motor Industry Association (KMIA).

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Most of the dealers, including Isuzu East Africa and Simba Corp, registered lower sales year-on-year, while CFAO Motors Kenya, newly merged from the former Toyota Kenya and DT Dobie, bucked the trend to post higher sales.

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