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Tuesday, January 28, 2020

Relief as second hand cars importation taxes in Kenya set to fall

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Vehicle Import Duty in Kenya: The second hand cars importation market can now breathe easy after the high court dismissed the current taxation formula used by KRA as illegal and punitive.

This ruling means that the amount of taxes paid on used motor vehicles is set to drop, which might also see the selling price drop, further passing benefits to the end buyer.This ruling was made by the High Court in Mombasa.

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In the ruling, Justice Eric Ogola declared that the CRSP is unconstitutional and ordered KRA to consult used car dealers when creating the next price list. “A declaration that for purpose of continuity and in the interest of the public the transactions already effected via the said CRSP … shall continue to apply until such a time as the respondents will establish a new CRSP value in accordance with the law within 12 months from the date of this judgment,” Justice Ogola ruled.

According to a report that appeared in the Business Daily on Tuesday, KRA has been using price quotations from dealers of new vehicles – such as Toyota Kenya – as the basis for calculating import duties and other levies on second-hand cars.

“Used cars generally attract an import duty of 25 percent, excise duty of 20 percent and valued added tax of 16 percent, payable cumulatively and in that order. The value of a car is calculated based on the CRSP for that specific model, adjusted for depreciation at a rate of 10 percent per year. Insurance and freight charges are added to the adjusted CRSP to arrive at the customs value,” says the report.

The report singles out the case of Al-Husnain Motors. Apparently,  Al-Husnain Motors imported a Toyota Land Cruiser V8 running on a 4.6-litre petrol engine. The used car dealer paid taxes of Sh. 4.1 million derived on the retail price of Sh. 14.4 million for a similar model in Kenya. KRA, however, demanded more taxes from the dealer, arguing that the car should be taxed based on the higher selling price of Sh. 17.9 million for a Toyota Land Cruiser VX.

“Used car dealers argued in court that the starting quotations, known as current retail selling prices (CRSP), are inflated and therefore result in unfairly higher taxes running into millions of shillings for those dealing in used imports. They also say the process is unconstitutional since it locks them out, meaning that there is no public participation,” says the report in the BD. The case against KRA was filed by Car Importers Association of Kenya.

“The current CRSP lists hundreds of vehicle models including Toyota Prado LJ running on a three-litre diesel engine whose showroom price is stated at Sh. 9.7 million. Others are Mercedes C200 Elegance with a 1.79-litre petrol engine (Sh. 7.3 million) and Toyota Vanguard 4WD with a two-litre petrol engine (Sh. 5.2 million),” says the report. Vehicle Import Duty in Kenya.

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