Cost of importing used cars into the region set to increase by 5pc

Saturday June 13 2015

Imported second-hand vehicles leave the port of Mombasa. PHOTO | FILE

Imported second-hand vehicles leave the port of Mombasa. The cost of importing used motor vehicles into East Africa will go up by five per cent from July 1, 2015 after EAC ministers adopted new car importation and valuation rules. PHOTO | FILE 

By CHRISTABEL LIGAMI, TEA Special Correspondent

The cost of importing used motor vehicles into East Africa will go up by five per cent from next month after EAC ministers adopted new car importation and valuation rules.

The ministers agreed to enforce the new rules, including standardised depreciation rates with effect from July 1.

In the new rules the depreciation rate for all motor vehicles imported to the region will range from 20-80 per cent (which is five per cent lower than the current depreciation rate) depending on the age of the vehicle from the date of registration.

According to the new rules, for a car that is more than a year old and less than or equal to two years from the date of manufacture, the depreciation rate (cost and freight) will be 20 per cent of the local retail price while for a car that is more than seven years and less than or equal to eight years, the depreciation rate will be 65 per cent.

“Although this lowers the depreciation rate by five per cent from the current rates, it will effectively increase the cost of importing a car into the country,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association (Kaba).

In Kenya, for example, if a buyer is importing a Toyota model from Japan that costs Ksh2 million ($20,199) at Toyota Kenya, the old model will now cost Ksh700,000 ($7,069) instead of Ksh600,000 ($6,059) minus the duty.

“The aim of the harmonisation is to address distortion of the trade in used motor vehicles between partner states and also to create fairness for consumers of used motor vehicles in the region,” said the EAC ministers.

The new rules have been benchmarked with those of other countries like Ghana, Ethiopia and Sri Lanka. 

EAC partner states have different valuation methodologies for used motor vehicles.

Kenya and Tanzania use almost similar valuation methods that involve determining the current retail selling price for the brand new motor vehicle in the domestic market.

From that price, the post-importation charges, which include duties, taxes and the profit margin, are deducted and thereafter the Customs value is derived based on the depreciation rate provided in the approved depreciation schedules. The current retail selling prices are obtained from the local motor vehicle dealers.

The depreciation schedule for Kenya provides up to a maximum of 70 per cent for eight years from the date of the first registration of the used motor vehicle; whereas that for Tanzania provides up to 80 per cent with no limit on the number of years. However, the Tanzanian methodology considers the year of manufacture.

Rwanda uses the previously accepted Customs value and Internet sources to determine Customs values for used motor vehicles.

Uganda uses a reference value guideline derived from the average market prices of used motor vehicles from Internet sources adjusted with freight and insurance to determine the Customs value.

However Uganda is in the process of developing a valuation system based on free on board (FOB) prices of brand new motor vehicles as at the time of manufacture sourced from manufacturers or their appointed representatives.

The FOB prices shall then be depreciated according to the approved schedule. The outcome shall be adjusted to include freight and insurance in order to determine the Customs value. 

Burundi uses a reference value guideline that is similar to Rwanda’s methodology.

The Kenya, Tanzania and Uganda valuation systems or databases are open to the public whereas Rwanda’s and Burundi’s are for internal use only.

The motor vehicle insurance rates in the five countries have also been harmonised within the CIF (Customs, insurance and freight) value to address the disparities created in valuation of similar imported goods given that the EAC is a Single Customs Territory.