After lowering the maximum depreciation rate from 70% to 65% of the vehicle’s value, the Kenya Revenue Authority (KRA) has struck importers of old cars with a new wave of tax increases.
The KRA staff has been told to implement a new depreciation rate schedule for cars as of Friday by Pamela Ahago, acting commissioner for the Customs and Border Control division. Due to Kenya’s eight-year age limit on used cars, the directive will result in a tax increase of more than 14 percent for vehicles made in 2016. These vehicles are now primarily imported by dealers.
It will increase the value used for calculating import duty to reduce the maximum depreciation rate, which the taxman claims is in line with other nations in the seven-nation East African Community trading bloc.
Due to the value being compounded for taxation, an increase in import duty has a comparable effect on excise duty and value-added tax. The implementation of the new value schedule, according to Ms. Ahago, is in accordance with a directive issued by President William Ruto on July 29 during a stakeholder engagement session held at the Port of Mombasa, instructing the KRA to “harmonize the valuation parameters of used motor vehicle units.”
In a message to staff on August 29, she stated, “In accordance with this [Ruto’s] directive, Kenya Customs will apply the depreciation schedule…that was adopted by the East African Community Council of Ministers.” On September 1, 2023, “all staff are required to abide by this valuation.”
A car’s value decreases over time owing to normal wear and tear starting from the moment it was constructed, hence the value is reduced for taxation reasons up to a maximum of eight years.
The projected tax payment for an importer of a Toyota Premio says it will increase from Sh939,221 to an estimated Sh1.096 million as of this Friday.
This is an increase in import, excise, and VAT fees of Sh156,537, or roughly 14.29 percent, excluding import declaration costs and the railway development levy. According to dealers, the higher expenses will probably be passed along to customers.
