7 November 2018

Kenya: Luxury Car Prices Up By Millions After Rotich Tax

Photo: The Nation
Luxury cars.

Buyers of luxury large-engine cars now have to pay up to Sh2.5 million more in the wake of a recent increase in excise taxes on fuel guzzlers, the latest industry data shows.

Excise duty on cars with engine capacity of 2.5 litres for diesel and three litres for petrol rose 30 per cent from the previous 20 per cent beginning September, prompting a cost increase that dealers have passed on to the buyers in the form of higher pricing.

Price quotes by dealers show that the tax has raised the cost of eight-year-old car used imports in this category by hundreds of thousands of shillings while that of new high-end models is up by millions of shillings.

The new three-litre diesel Land Rover Discovery HSE tops the list of cars whose prices have jumped by large margins, having risen by Sh2.5 million.

The price of a used, eight-year-old Toyota Land Cruiser running on diesel is up by Sh258,700.

The cars now attract an import duty of 25 per cent, excise duty of 30 per cent and valued added tax of 16 per cent, payable cumulatively and in that order.

Dealers say the price increase is likely to slow down demand for the top-of-the-range cars and ultimately hurt the government's plan to collect higher revenues from the industry - including earnings from the newly introduced petroleum levy.

"We see this hurting demand from our corporate and individual customers," said Sanjiv Shah, the chief executive of Inchcape Kenya, which sells Jaguar Land Rover (JLR) models.

'Defeat objective'

Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, whose members deal in used cars, said the higher tax and its impact on pricing defeat the objective of increasing tax revenues from the sector.

Government departments, private companies and wealthy individuals, who buy most of the cars in the targeted range, have been the hardest hit by the tax changes. A price guide seen by the Business Daily shows, for instance, that the price of new Land Rover Discovery with three-litre diesel engines is up by between Sh1 million and Sh2.5 million.

New Range Rovers with five-litre petrol engines and Range Rover Sport models with three-litre diesel engines now cost Sh2 million more.

The tax change has pushed the retail price of the Range Rover Autobiography to Sh40 million from the previous Sh38 million.

The total duty on a three-litre Toyota Land Cruiser model manufactured in 2011 rose from Sh1.4 million to Sh1.6 million, with the difference of Sh258,700 reflected in the final sale price, according to Mr Munyori.

The tax impact on a similar age and engine specifications of Mercedes Benz 350 CDI is an increase of Sh187,019, Nissan Patrol (Sh175,290) and Volkswagen Touareg (Sh155,000).

A Mercedes Benz C350 of a similar age but with a 3.5-litre petrol engine now attracts total taxes of Sh1.08 million compared to the previous Sh916,123, an increase of Sh167,397.

The impact on an eight-year-old Toyota Land Cruiser with a 3.4-litre petrol engine is an increase of Sh108,453, which is factored into the final retail price.

'PAY MORE'

The government says it introduced the new tax measure to make the rich pay more, adding that the previous uniform excise duty rate of 20 per cent did not take into account motorists' divergent incomes.

"To ensure progressivity, which is a cardinal principle of taxation, I propose to increase excise duty from 20 per cent to 30 per cent on private passenger motor vehicles whose engine capacity exceeds 2,500cc for diesel and 3,000cc for petrol-powered vehicles," Treasury Secretary Henry Rotich said when he first proposed the tax increment.

This is the latest change in motor vehicle excise taxes, with the government overturning previous measures after protests from various stakeholders.

The duty was changed from 20 per cent to a flat rate of Sh150,000 on new to three-year-old vehicles and Sh200,000 for older models in 2015 when the tax also roped in local assemblers.

The move resulted in imports of luxury cars enjoying lower taxes while the duty on small cars rose significantly, resulting in regressive taxation.

The levy went back to 20 per cent the next year when local assemblers also won back their exemption, which they say is their main incentive.

It remains to be seen what impact the latest tweaks will have on the industry where passenger car sales -- including used imports -- rose 5.4 per cent to 30,938 units in the six months ended June.

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