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Kenya looks to increase duty on EAC car imports

Saturday June 14 2014
cars

Imported vehicles leaving the port of Mombasa. Photo/Anthony Kamau

The cost of importing vehicles in the region could go up, following a push by Kenya to have importers of buses and trucks pay 25 per cent duty.

The EAC had suspended payment of duty by some partner states, giving importers advantage over local manufacturers. Uganda, Tanzania, Rwanda and Burundi had sought a stay during which they would be exempted from paying duty.

At the latest EAC Sectoral Council of Finance and Trade Ministers meeting in Arusha, Kenya sought an end to the preferential treatment. If the application is adopted, Ugandan and Rwandan importers are expected to be most affected since 90 per cent of their import goods come through the port of Mombasa.

Currently, there are no common standards in the motor vehicle assembly sector.

READ: Summit to consider import tax to finance EAC Secretariat

According to the ministers’ report, in order to support local assemblers Kenya proposed that partner states, state corporations and all publicly funded agencies give preference to locally assembled vehicles.

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Imports of parts used in local assembly are usually exempt from the 25 per cent import duty levied on fully built up cars. Most importers bring in cars from Japan, Singapore, United Kingdom, South Africa and the United Arab Emirates.

In June last year, the EAC Ministers for Trade and Finance agreed to increase the Common External Tariff (CET) charged on new and old vehicle imports from zero per cent in Uganda and Tanzania to the 25 per cent applied in Kenya.

The ministers also allowed duty remission that allows motor vehicle assemblers to sell in members states, including Rwanda and Burundi, without paying duty. Previously, they used to pay a duty of 25 per cent that was then claimed back from national revenue authorities.

This push for an end to preferential treatment could result in a increase in the cost of vehicle imports, especially with regular reviews of port charges.

In February, the Kenya Ports Authority announced that it would review cargo handling tariffs. Some of the proposals included increasing stevedoring charges for small cars, from $70 to $73.50, a 5 per cent rise, and reduction in charges for buses, trucks and earth movers from $500 to $400, representing a 20 per cent drop.

There has been a push for harmonisation of valuation of used motor vehicles in order to rid the market of over-age vehicles. In December 2013, the EAC agreed on a harmonised methodology for determining the Customs value for used motor vehicles.

The system will use FoB prices of brand new vehicles, a depreciation schedule, freight, and insurance. The policy is yet to be effected.

Findings of a study conducted by the EAC Secretariat showed that motor vehicles assembled in the member states are less competitively priced than the same models imported from outside the region, when duties and taxes are excluded.

Kenya is the largest motor vehicle assembler and importer in the region. Data from the Kenya National Bureau of Statistics shows that 7,667 vehicles were assembled in the country last year, representing 52.7 per cent of the 14,542 new cars sold during that period. This is an increase from 6,218 units assembled in the same period the previous year, which accounted for 47.3 per cent of the total 13,135 new vehicle sales.

Preference

The growing preference for locally assembled vehicles is expected to create more jobs and reduce idle capacity at three assembly plants — Kenya Vehicle Manufacturers, Associated Vehicle Assemblers and General Motors East Africa.

Products such as tyres, tubes, batteries, springs, radiators, brake pads, cables, rubber components and filters are also now produced locally, while a number of firms fabricate bodies for commercial vehicles.

Analysts say that the slow growth in the motor industry has been attributed to a reduction in spending by the corporate sector.

“The government, once a major buyer, has also gone slow on car orders as it rolls out plans to lease cars from private investors,” said a Kenyan analyst.

A major challenge in the motor vehicle sector is competition from secondhand vehicles, a problem that started when liberalisation of the economy was introduced in 1993. Massive importation of these vehicles has reduced the output of vehicle assembly plants.

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