KRA will allow used car importers to defer taxes

Economy

The KRA will allow used car importers to defer taxes

Monday, April 24, 2023

Used cars are imported into the Port of Mombasa on April 8, 2022. Photo | Wachira Mwangi | NMG

Used car dealers and individuals will soon be able to ship vehicles and defer paying taxes for up to one year, boosting cash flow positions on reforms expected to lower car prices.

The William Ruto administration has directed the Kenya Revenue Authority (KRA) to allow the use of bonded warehouses for imported used vehicles, placing them on the same base as new vehicle imports.

This allows importers to store units in KRA customs-controlled locations for up to six months without paying taxes while they search for buyers, and they may seek an additional six-month extension.

Currently, used car importers are required to pay all taxes estimated at approximately 55 percent of the import cost and remove their units from Container Shipping Stations (CFS) within 30 days.

Failure to vacate results in the KRA requiring that they give them a month’s notice to clear the cars or risk the vehicles being auctioned off.

Vehicles shipped from overseas markets such as Japan, the United Kingdom and South Africa are charged import duties of 25 percent, taxes between 20 percent and 35 percent depending on the engine type and a value-added tax of 16 percent, payable cumulatively and in that order .

This policy shift is part of a decision from a multi-agency meeting on the ease of doing business in Mombasa chaired by Cabinet Minister for Trade, Commerce Moses Correa and his counterpart in the transport sector, Kipchumba Morkomin, on April 14 in Mombasa.

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The meeting, which was attended by heads of key government agencies such as the KRA and the Kenya Ports Authority, “agreed to streamline and introduce customs warehouses for the inspection of imported used vehicles”.

Dealers believe that eliminating tax prepayments will boost their cash flow, eventually relieving pressure on used car prices.

Customs warehouses are buildings operated by private companies licensed annually by the KRA, where tax-deferred goods are kept.

The same benefits will also be available to individuals who bring in vehicles for their own use or to resell them for a profit.

This means that importers can leave the vehicles in bonded warehouses and not pay taxes until they have buyers. This will boost cash flows for importers, said Charles Munyori, general secretary of the Kenya Auto Bazaar Association. The daily business.

“It also has the potential to reduce car prices by encouraging large amounts of imports by big players, which will reduce everyone’s need to buy from abroad and bear foreign exchange fees.”

Used cars such as the Subaru Impreza, Toyota Vitz and Volkswagen Golf have soared in price by hundreds of thousands of shillings due to the scarcity and weakness of the local currency.

Car dealers say prices for 2016-assembled cars – which they now largely import based on the eight-year age limit – have risen by up to Sh400,000 in certain models compared to last year.

A used Subaru Impreza now retails for Sh1.7 million, up from Sh1.35 million last year.

During the same period, the price of the Toyota Vitz increased to Sh1.3 million from Sh1.1 million.

The Volkswagen Golf saw its price jump to Sh1.8 million from Sh1.4 million. There were now few eight-year-olds priced under a million shillings, establishing car ownership as one of the hallmarks of the middle class.

The rally slashed car dealers’ roadside sales and discounted a large segment of the professionals and small business owners who are major used-car customers.

Although used cars are listed as dutiable goods to be held in bonded warehouses, dealers have claimed that the KRA has restricted them and only allows new car importers to enjoy tax-deferred benefits.

The KRA in April 2021 reversed its move in October 2020 under the regulations of the East African Community Customs Administration Act that excluded used vehicles, among other items, from deposit at customs controlled premises.

The law allows customs warehouses, whose licenses are renewed annually, to extend the period of depositing goods on the premises for another six months or any other period at the discretion of the KRA Customs Commissioner.

This means that the importer can defer paying taxes for up to one year.

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“This ends discrimination in the market because new car dealers have the privilege of using bonded warehouses,” Munyori said.

“The use of bonded warehouses for used car imports existed before, but was discontinued in 1992.”

Besides tax benefits, warehousing also allows companies to manage their inventory by replenishing them in a timely manner and avoiding delays that may cause shipping freight to the country by sea.

“We also expect that with customs lifting restrictions on stockpiling used cars, there will be an improvement in cash flow and inventory for importers in the market,” said Peter Otieno, president of the Kenya Automotive Imports Association.

The move is part of the Roto administration’s plan to ease the cost of doing business in the country, with the port of Mombasa being a major node in trade for the seven-nation East African Community bloc.

Customs warehousing is implemented globally as a means of facilitating international trade.

In Kenya, it allows companies, including those involved in cross-border trade, to deposit their cargo on premises while they search for customers without paying taxes.

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