Importers of second hand cars want the Kenya Revenue Authority to withdraw the current template used to calculate duty for commercial vehicles, saying it is against the law.
Through their lobby group, Car Importers Association of Kenya, the importers said KRA is using the wrong depreciation on commercial vehicle, different from the one used on private cars, despite both categories attracting excise tax under the new tax regime.
Treasury Cabinet secretary Henry Rotich amended the Excise Duty Act 2015, introducing an ad valorem 20 per cent tax based on the value of the vehicle, repealing the specific duty rate he introduced in 2015-16 financial year of taxes between 150,000 and Sh.200,000 based on year of first registration.
“Previously commercial vehicles were not attracting excise tax but under the new law all vehicles are attracting the tax, however KRA are using a formula that is subjecting commercial vehicles to higher taxes adding up to Sh.200,000 more ,”CIAK chairman Peter Otieno said.
The association has accused the tax man of omitting the 20 per cent excise tax when calculating the vehicle depreciation value to get the book value of the unit, but includes it in the final taxation, which increases duty.
For instance the formula used to depreciate a private vehicle is Current Retail Selling Price which is divide by 125 per cent (duty), divide by 120 per cent (excise duty), divided by 116 (VAT)which is then divided by 125 per cent (profit margin).
This gives the Cost Insurance and Freight of the unit, which is the right value of the vehicle landed in Kenya.
It is this value that KRA is now supposed to tax 25 per cent duty, 20 per cent excise and 16 per cent VAT, what importers want used for commercial vehicles.
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“They don’t depreciate with excise which makes us pay more,” Otieno told the Star.
The CIAK accused KRA of holding seven commercial vehicles on claim they have not paid duty, despite having been cleared in its systems.
In a response letter to the importers, KRA said excise duty was not factored in for commercial vehicles in a CRSP released on June 1, 2016.
“We wish to assure you that we shall factor in the excise duty element in our next CRSP,” reads the letter signed by Kariuki Githigi , on behalf of commissioner customs and border control.
The importers have threatened to move to the Tribunal court next week if the issue is not resolved.