Assembled motor vehicles now welcome in Dar, tax free

Saturday October 10 2015

Mobius, Kenya's first low cost car. Regional auto assembly plants can now fully enter the Tanzanian market. PHOTO | COURTESY

Regional auto assembly plants can now fully enter the Tanzanian market after the lapse of an East African Community October deadline for Dar to lift a 30 per cent excise duty on locally assembled vehicles.

Previously, Tanzania had complained of some partner states breaching the rules of origin by allowing vehicle assembly firms to resell imports without any significant value addition. This led to the standoff that saw Dar tax these products despite their being zero rated.

Last week, while on a state visit to Kenya, President Jakaya Kikwete flagged off the first batch of locally assembled vehicles from General Motors East Africa plant in Nairobi, destined for Tanzania.

In January, Tanzania had asked for time until October to enforce the rules of origin before it could allow exports of the assembled units to its market.

Last week, it lifted the 30 per cent excise duty levied on vehicles assembled in Kenya, opening its market for more assembled vehicles from the country. This followed the implementation of an agreement at the 16th Ordinary Heads of State Summit held in Nairobi in January. The ministers directed that partner states allow the sale of assembled cars within the region freely.

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According to General Motors managing director Rita Kavashe, summit directed in January that products assembled in member states under the tariff heading of substantial transformation (process of assembly for motor vehicles from completely knocked down kits to fully assembly) can be sold in member states on a duty free basis.

“This zero rating of vehicles from Kenya will not only promote trade between Kenya and Tanzania but will have far reaching implications for the region’s automotive sector. We are now going to see a broader business opportunities not just for the auto industry but also for other manufacturers who had previously been affected by the rules of origin requirements,” Ms Kavashe said.

Kenya Association of Manufactures chief executive Phyllis Wakiaga said that the current trade barriers between the two countries can be addressed through a joint political effort.

“We need to address non-tariff barriers (NTBs) to the free movement of goods and labour by streamlining the issuance of work permits and implementing the EAC industrialisation policy and strategy,” Ms Wakiaga said.

President Kikwete said that Tanzania was also working to remove any other non-tariff barriers that affect the ease of doing business between the two countries.

Mid this year, General Motors signed a $6 million dealership agreement with Quality Automotive Mechanisation Ltd that will allow the Isuzu and Chevrolet brands to enter the Tanzanian market. The auto firm hopes to set up an assembly plant in the county through the agreement.

Kenya’s Industrialisation Cabinet Secretary Adan Mohammed said local assembly would help phase out the flood of “reconditioned imports” into the region.

“Unfortunately, it is what happens at the borders that sometimes cause slight challenges. But once the industry is able to demonstrate the ability to build these vehicles, then we will tighten the laws on age limit on imported second-hand vehicles,” Mr Mohammed said.

Tanzania only has the Bajaj Auto assembly plant, which specialises in making auto rickshaws.

However, China’s Sinotruk is building an assembly plant in the country that is set to open next year. Kenya, on the other hand, has the Toyota Kenya plant, Foton East Africa, and Kenya Vehicle Manufactures, with Randon Trailers assembling the Volkwagen buses and trucks.