Kenya’s used car dealers have sounded the alarm over the growing importation into the local market of Uganda-registered vehicles whose quality is not known and for which no taxes have been paid.
Many Kenyans are reportedly now involved in a tax and regulatory arbitrage to ship in cheaper and older cars.
Most of the used cars coming from Uganda, though cheaper, are much older than those in the Kenyan used car market because Kampala has not put an age limit on imported second-hand automobiles.
This implies that one can ship in a much older car through Uganda, declare low custom value and pay much lower taxes compared to direct importation into Kenya where used cars aged more than eight years cannot be allowed in.
“We wish to alert you of the large number of Uganda-registered vehicles operating in Kenya, specifically Western Kenya,” the secretary-general of the Kenya Auto Bazaar, Charles Munyori, wrote to Kenya Revenue Authority (KRA) Commissioner-General John Njiraini.
“We have also noted that people have started buying and selling them locally while bearing the Uganda registration plates, meaning no taxes are paid.”
Mr Munyori further said that most of the vehicles do not meet the quality standards set by the Kenya Bureau of Standards (Kebs), urging the taxman to investigate how the cars are able to be sold and operate locally without paying the necessary taxes.
The KRA says it continues to implement strict surveillance on all cars, whether in transit or imported on a temporary basis.
The taxman, however, could not say how many Uganda-registered cars are currently operating in Kenya.
Kenya’s cap on the age of second-hand car imports means the oldest units being allowed in now were manufactured in 2009. The limit has made it relatively more expensive to ship in used vehicles to Kenya compared to Uganda, which allows automobiles dating as far back as the 1980s.
A 2009 two-litre Toyota RAV 4 is, for instance, currently being imported to Kenya at a total cost of Sh1.8 million, including taxes. In Uganda, the 2000 version of the car is being imported into the country at a total cost of about Sh860,000, including taxes.
While a 2000 RAV 4 with similar specifications can be bought locally from second owners, they are currently offered at higher prices compared to the fresh imports in Uganda.
Age being equal, direct imports from overseas markets like Japan are seen as more reliable due to the relatively better quality of roads and maintenance in the source countries.
The law has tried to restrict tax and regulatory arbitrage within the East African Community (EAC) by stipulating several conditions under which a Kenyan may ship in a car from Uganda.
A Kenyan who has been working in Uganda for several years is allowed to bring home a car without paying taxes, provided it is registered in his or her name.
There are no fees on cars crossing the border for two weeks or less while those with an engine capacity of two litres or less and brought in for more than two weeks are charged $20 (Sh2,040).
A fee of $40 (Sh4,080) is charged on those with an engine capacity of more than two litres and coming into Kenya for more than two weeks.
Upon expiry, a licensee has to drive across the border to get fresh authorisation to operate a Uganda-registered car in Kenya.
This means that those living near the Kenya-Uganda order, including places like Busia and Malaba, are better placed to take advantage of Uganda’s car prices by paying the periodic fees.
Enforcement of the licence renewal and fees thereon may also not be strong, especially in rural areas.
Those importing Ugandan cars temporarily are required to fill in a form (KRA Form C32), which captures details like the log book number, country of registration and the port of entry.