Taxes on second-hand car imports are set to rise by up to 145 percent next month as the Kenya Revenue Authority (KRA) moves to update the prices of new units on which taxation of used models is based.
Small cars like Suzuki Swift, Mazda Demio and Toyota Vitz, which have grown more popular due to their fuel efficiency and use in taxi business, will attract the biggest percentage increase in taxes while some bigger cars like Volkswagen Tiguan and Lexus LX570 will see their tax bill fall in the latest review of the Current Retail Selling Price (CRSP).
Beginning July 1, the KRA plans to collect six taxes, including import duty, based on the new price list that will see the taxman collect a total of Sh623,503 on a 1.2-litre Suzuki Swift manufactured in January 2018 and running on petrol.
This will mark a 145.8 percent jump from the current taxes of Sh253,574 that is currently payable on a near-similar model with a 1.29-litre engine.
Most cars made in 2018 –the latest year allowed based on the eight-year import rule— will see their total taxes rise by more than Sh150,000 in a move that is set to shake up the second-hand car trade in the short term.
“There will be drastic changes on the duty payable and the small engine vehicles are the ones that have been hit hardest,” Charles Munyori, the secretary-general of Kenya Auto-Bazaar Association, a lobby for second-hand car dealers, said.
A 1.5-litre petrol-powered Mazda Demio will see its taxes jump to Sh467,350 from the current Sh247,109. This is after the car’s CRSP or showroom price increased to Sh3.39 million from Sh1.67 million.
Used vehicles imported from overseas markets like Japan, the UK, and South Africa are charged an import duty at the rate of 35 percent, excise duty ranging from 20 percent to 35 percent depending on the size of the engine and value-added tax of 16 percent.
The taxes are paid cumulatively and in that order starting with the CRSP that provides for a maximum depreciation rate of 65 percent to arrive at the customs value.
This means that a higher base price results in a larger tax burden.
Importers also pay two additional taxes –import declaration fee at 2.5 percent and railway development levy at two percent of the customs value in each case.
The new CRSP will see the taxes on a 2.2-litre Mazda CX-5 running on diesel increase to Sh944,486 from the current Sh784,847 while the taxes on a petrol-powered 2-litre Toyota Harrier will jump to Sh1 million from Sh883,816.
An importer of a 3-litre diesel Range Rover Vogue will pay the taxman Sh4.79 million from the current Sh4.19 million.
Some big cars, including sports utility vehicles (SUVs) made by Toyota and Volkswagen, have, however, benefitted from the new price list that will lower the taxes payable at the ports.
Roadside yards
Total taxes on the petrol-powered Lexus LX570 will fall to about Sh3.41 million from Sh4.81 million or a drop of 29 percent, benefiting wealthy buyers of the model that costs more than Sh14 million on roadside yards.
Those planning to buy a 1.4-litre Volkswagen Tiguan running on petrol can expect to pay Sh494,693 in total starting July, a substantial drop from Sh842,717 that one pays currently for a similar model but with a larger 2-litre engine.
The continued use of CRSP as the base for taxing used cars marks a U-turn from the taxman’s proposal last year to switch to actual prices paid by importers following protests by a section of second-hand dealers who accused the KRA of rigging the CRSP to overcharge them.
The High Court in Mombasa had stopped the KRA from reviewing the CRSP until it conducted a public participation in the wake of errors discovered in an earlier price list.
The court, for instance, was told at the time that the KRA listed the price of a new Subaru Forester at Sh6.39 million while the same vehicle had a showroom sticker price of Sh4.38 million.
This deviation resulted in importers incurring an excess tax burden of more than Sh1 million on the model.
The fresh price increments starting July will hit dealers who are yet to recover from the depressed sales in 2023 when a sharply depreciating shilling triggered steep prices and depressed demand for the imported second-hand cars.
Higher taxes will also negate the gains of a strong shilling that had since last year cushioned buyers against steep price increments of their preferred models.
But the dealers have already written to the taxman seeking the implementation of the new CRSP to be delayed by two months in a bid to ensure that orders that have already been made are not affected.
There is industry apprehension that the new CRSP if enforced will trigger significant price changes due to the higher duty that dealers will have to pay effective start of next month.
“We wrote to KRA on Monday requesting them to push the start date to September 1. This is because we have orders already in the high seas and if the start date is not delayed there will be drastic changes on the duty payable,” Mr Munyori said.
