The number of vehicle imports at the Port of Mombasa last year declined for the first time in five years in what motor dealers have linked to the increase in excise taxes on popular models.
Vehicles discharged from the port reduced by eight per cent to 143,833 units in 2015 compared to 157,856 units the previous year, according to data from the Kenya Ports Authority (KPA).
The numbers had risen steadily from 105,048 in 2011, 120,268 (2012) and 136,915 (2013), peaking at the 157,856 units in 2014 before declining last year.
The drop has been attributed to a slowdown in imports of small second hand cars that account for more than 70 per cent of all vehicles shipped in from markets like Japan and UK.
Treasury secretary Henry Rotich in June 2015 announced higher excise taxes on most used vehicles and Kenya Revenue Authority (KRA) effected the same in December last year.
“Most of the used car dealers knew that the legislation would be implemented. They were not exactly sure of the timelines which accounts for the decrease in numbers in the second half of 2015,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association.
The new excise tax law puts the charge on imported vehicles more than three years old at Sh200,000 and Sh150,000 for newer ones —a departure from the previous duty of 20 per cent on a vehicle’s value.
The higher excise taxes have had the effect of raising the total cost of importing used vehicles significantly, with the price of some models going up by more than Sh200,000.
A KRA schedule released ahead of the coming into force of the new law shows that duty on a Toyota Vitz –one of the smallest cars on Kenyan roads– jumped from Sh180,069 to Sh345,842, a 92 per cent increase.
Duty on the popular models, Toyota Belta (1290cc), Toyota Premio (1490cc) and Honda Fit (1290cc) was up by Sh98,001, Sh124,000 and Sh145,291 respectively.
Luxury cars like Range Rovers and Mercedes Benz, which account for a small share of all vehicle imports, however saw their excise taxes drop by up to Sh1 million.
Mr Munyori said the increase in prices has slowed down demand, with vehicles imported prior to the introduction of the new excise taxes being prefered over those whose prices reflect the higher duty.
“If you look at what people are currently purchasing, it is the cars that were imported prior to the new tax,” he said
The justification of the new taxes, through which the government hopes to raise Sh25 billion annually, was to compensate for the harmful effects of envrironmental pollution associated with higher emissions from older vehicles.
The excise taxes are set to rise each year at a rate matching inflation and it remains to be seen what impact that will have on demand for vehicles in the coming years.