The Treasury’s bet on high-end car market has failed to boost revenues after the taxman managed to net only Sh91 million on luxury vehicle purchases in the year to June.
The State had last year increased excise duty on engine capacity beyond 2,500cc to 30 per cent from 20 percent charged previously.
The tax measures which started in September following the passage of Finance Management Act 2018 were aimed at discouraging importation of cars in order to promote local motor vehicles assembly and create jobs.
“The revenue implication for the increased rates of excise duty on vehicles above 2500 cc has been Sh91 million,” Maurice Oray, Kenya Revenue Authority (KRA) deputy commissioner for corporate policy told Members of Parliament last week.
Previously, all imported vehicles were subject to import duty of 25 per cent, 20 per cent excise tax and valued added tax (VAT) of 16 per cent payable cumulatively in that order.
Dealers passed on the increase in excise taxes on the fuel guzzlers to buyers in the form of higher pricing, pushing down sales. Industry data shows the trend has continued this year with sales of new luxury cars falling 50 percent in the six months to June.
Data from the Kenya Motor Industry Association shows that sales of all the high-end brands, including BMW, Mercedes and Land Rover declined to 69 units against 137 in the six months of 2018.
Under the Finance Bill 2019, however, the Treasury has proposed to increase the rates for diesel and petrol from 20 percent to 30 percent and from 30 percent to 35 percent respectively.
In 2016 Treasury increased excise duty for locally assembled and imported cars but later in September the same year scrapped it after Kenyan based assemblers lobbied.
The Treasury, however, reverted to charging 20 per cent of a used imported vehicle’s value instead of the flat fee of Sh200,000.
Local motor vehicle assemblers have been upbeat about the renewed efforts to revive the industry that has been down for close to four decades after Kenya opened imports for used cars.
The government recently announced that it will exclusively promote car and motorcycle dealers that have local assembly plants.