Kenyans cut vehicle imports by Sh22bn on taxes

Kenyans have slashed expenditure on the importation of motor vehicles by nearly a fifth on the back increased taxation, weakening shilling and shortages of second-hand units, signalling a revenue shortfall for the taxman.

Fresh data shows the value of vehicle imports for 10 months through October amounted to $680 million (about Sh102 billion) compared with $825 million (Sh123.75 billion) in a similar period a year ago.

That represents a drop of 17.58 percent, or $145 million (Sh21.75 billion), according to the data collated by the Central Bank of Kenya from numbers tracked by the Kenya Revenue Authority.

The double-digit fall came in the wake of increased taxation for the sector that followed a shortage of second-hand units in international markets early in the year.

The imports fell at a faster pace of 19.17 percent in 12 months through October to $852 million (Sh127.80 billion) from $1.05 billion (Sh158.10 billion) in the prior period, according to the provisional data.

The cost of importing vehicles has also jumped this year on weakening shilling against major international and rising borrowing costs as part of the ammunition deployed by the CBK governor Kamau Thugge to battle demand-driven pressures on prices.

The Kenya Auto Bazaar Association, which represents second-hand car dealers, had warned that the high cost of shipping in cars would impact orders this year.

“What we see happening is that people are changing 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,” the lobby’s secretary general Charles Munyori told the Business Daily in a recent interview. “For importers, if you are bringing in 10 Harriers, you may cut it to seven because of the high costs.”

Motor vehicle imports are one of the major sources of taxes for the government and a drop in the value signals a downward trend in revenue.

The KRA increased duty on importing cars from 25 percent to 35 percent in July after the East African Community Council of Ministers approved Kenya’s application to levy a higher rate than the 10 percent common external tariff (CET) for the seven-nation EAC bloc.

Importation of vehicles further attracts excise duty ranging from 25 percent to 35 percent depending on the size of the engine, in addition to the standard 16 value-added tax (VAT).

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

The reduced spending on vehicle imports came at a time local assemblers and dealers have also reported a 14.05 percent drop in orders for new units.

Orders for new vehicles from local firms such as Isuzu and CFAO Motors Kenya — the entity formed following the merger of Toyota Kenya and DT Dobie operations in May— stood at 9,684 units in the January-October 2023 period compared with 11,045 units in a similar period last year.

Treasury Secretary Njuguna Ndung’u has raised the red flag over the impact of falling vehicle imports on targeted revenues, alongside other goods such as fuel and beer.

“The shortfall in excise duty is explained by the decline in oil volumes, motor vehicle imports, and deliveries of domestic excisable goods such as cosmetics, beer, and spirits,” the Treasury official wrote in the 2023 Budget Review and Outlook Paper (BROP) which was finalised in November.

The CBK data, sourced from the KRA, further shows the value of imports of petroleum products plunged 26.57 percent to $3.26 billion (Sh488.40 billion) in the 10 months from $4.43 billion (Sh665.10 billion) in similar period last year, partly on falling prices globally. Local sale of Super and diesel has also been under pressure since last year.

Source: Business Daily

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