NAIROBI, KENYA, JAN 23 — The government is keen to reduce imports of second-hand cars into the country, State Department for Investment and Industry Principal Secretary Patrick Nduati has said.
This is in a bid to promote the local automotive industry which has shown growth potential under the Jubilee administration, which has given incentives to investors to set up assembly plants in the country.
“We will have stringent measures including taxes,” Nduati told an investor forum in Nairobi, during a showcase by Chinese motor vehicle manufacturer Foton Motor Group.
The Industry, Trade and Cooperatives Ministry has been contemplating on how to cut used car imports, which account for 80 per cent of the vehicles on Kenyan roads.
The Kenya National Bureau of Statistics data shows about 99 per cent of annual vehicles imports are used cars.
Last year, Industry, Trade and Cooperatives Cabinet Secretary Adan Mohamed proposed a ban on the importation of second hand cars.
“Over 10,000 second-hand vehicles come into our market every month. We want to make sure this does not happen in the long-term,” Mohamed said during a presentation of the country’s industrialization plan.
He said the decision was part of a renewed effort to attract more investment in the automotive industry, which has underperformed for decades amid cutthroat competition from the second-hand car market.
The ministry has been pushing for motor vehicle manufacturers to set up in Kenya.
Nduati called on manufacturers to take advantage of the government incentives set for the industry to invest in Kenya.
This includes the reduced corporate tax for companies assembling vehicles in the country.
Under the Finance Bill, 2017 published on April 3, 2017, the National Treasury amended various tax provisions while at the same time providing clarity on the existing provisions.
The Finance Bill introduced a reduced corporate tax rate of 15 per cent for companies assembling motor vehicles locally, for the first five years from the year they commence operations.
“The 15 per cent rate can be extended for a further period of five years if the company achieves a local content equivalent to 50 per cent of the ex-factory value of the motor vehicles,” PS Nduati noted, quoting the Finance Act.
Global renowned brands have shown interest in setting up assembly lines in the country, with some having already mobilized.
Among them is France’s PSA group, the maker of Peugeot, which last year signed a contract to start assembling two car models in Kenya.
These are Peugeot 508 and 3008 models, assembled from kits of pre-assembled modules with local partner URYSIA, its long-standing Kenyan importer and distributor.
The venture was targeted to produce about 1,000 vehicles annually.
German manufacturer Volkswagen also begun assembling cars in Thika last year.
India’s Ashok Leyland also announced plans to establish an assembly plant in Kenya.
Last week, Chinese motor vehicle manufacturer Foton Motor Group announced it was setting up an automobile assembly plant in Mombasa, through its subsidiary — Foton Motor Kenya Limited. The assembly will have an annual capacity of 1,000 units.
Last year, Kenya proposed to reduce the age limit of second hand cars to five years, from eight, across the East African Community region.
The move was however rejected by other EAC member states who argued that Kenyans have a higher purchasing power and therefore can import new vehicles, as opposed to their neighbours.
In his 2015-16 financial year budget, Treasury Cabinet Secretary Henry Rotich introduced a blanket tax of between 150,000 and Sh200, 000 on second hand car imports, based on year of first registration.
He however amended the Excise Duty Act 2015, introducing an ad valorem 20 per cent tax based on the value of the vehicle.
The move was seen as a strategy by the Jubilee government to remain appealing to the low and middle class, who had been affected by high unit prices.
Second hand cars also attract an Import Duty charge at 25 per cent of the CIF value of the vehicle, excise duty at 20 per cent, VAT 16 per cent, an Import Declaration Fee of 2.25 per cent and Railway Development Levy of 1.50 per cent.
Importers or buyers also meet other costs including the motor vehicle registration fees.
Last year, the Kenya Revenue Authority rebased its taxation of used car imports, raising the duty payable on prices of some Mercedes and Mazda models by more than 50 per cent, in a move seen to support government’s efforts to discourage second hand cars.
The taxes increased the prices of the models by between Sh145,000 and Sh364,000, a move that hurt local consumers.
The Car Importers Association of Kenya has since called on the government to consider the “majority” low and middle class, who can’t afford high end cars.
“Most Kenyans cannot even afford the used cars, will they be able to purchase the new locally assembled vehicles?” CIAK chairman Peter Otieno questioned, terming the PS remarks as “a laughable statement which has been issued without findings hence do not care of common and majority of Kenyans.”
“That’s because he doesn’t care of the middle class citizens and those youths who are starting their lives,” Otieno said.
Kenya imports an average 12,000 units of second-hand cars per month, mainly from Japan United Arab Emirates, United Kingdom, Singapore and South Africa.