Do Kenya’s used car dealers really pay Sh49 billion a year in import tax?

Cars (PHOTO: Courtesy)

Second-hand car dealers in Kenya are feeling the squeeze as the government seeks to limit both the age and make of cars that can be imported.

In a draft national automotive policy, authorities cite high maintenance costs and a drain of foreign exchange. But dealers have labelled the policy “discriminative” and “solely designed” to drive them out of business.

The Kenya Auto Bazaar Association, traders who import and sell used cars, recently took out a full-page advertorial in national newspapers.

In it they argue that the policy would make owning a car the privilege of a few. “Please Mr President, please don’t shut us out,” they urge in the February 2019 “humble appeal”. 

They also give figures to show how important their trade is to the economy. “We are contributing to the national government in excess of Sh49 billion in taxes annually,” the advertorial says.

We checked if this figure - about 3 per cent of the taxman’s total annual collection - adds up.

‘We worked on some figures’

The appeal was signed by Major (Rtd) John Kipchumba, the auto association’s chairperson, and Charles Munyori, the secretary.

Munyori told Africa Check they did not have published tax figures, so they came up with an estimate.

“What we did is that we worked on some figures. The number of imports, so the number of used vehicles that are imported into the country every year, and then we took the average duty.”

How was the average calculated? Munyori said they used Sh450,000 –  the “average tax” paid to import a typical saloon car of 1,500 cc engine capacity.

Calculating ‘average import taxes’

A range of taxes applies when a used car is imported. These include import duty, excise duty, and value added tax, an import declaration fee and a rail levy.

Using the tax agency’s motor vehicle import duty calculator, Africa Check estimated that a used 2014 Toyota Axio of the 1,500 cc engine capacity the car dealers used would cost at least Sh508,000 to import.

While 1,500 cc cars were commonly imported, that did not mean the import taxes paid on them constituted “average import taxes”, Alex Murage, a director at professional services firm PwC Kenya, told Africa Check. This figure would need to be calculated in detail, he said.

The tax agency also says the calculator is only a guideline. It does not include other charges such as registration and port fees, or consider enhancements to the car.

Different figures for imported cars

Kenya raised Sh1.28 trillion in total tax in the 2016/17 financial year, and Sh1.47 trillion in 2017/18. That’s according to the 2018 economic survey by the Kenya National Bureau of Statistics.

But the official data gives different numbers for car imports.

The national statistics agency says some 94,464 motor vehicles were imported into Kenya in 2017, at a cost of Sh85.22 billion. These were both new and used.

But the same economic survey says 114,133 vehicles were landed at the port of Mombasa in 2017 but does not say if any were in transit. 

The agency also publishes a “statistical abstract” to give a “complete time series data of the Kenyan economy from one single official source”. The 2018 edition gives the number of new and used imports in 2017 as 81,585 motor vehicles and 3,946 buses, trucks and lorries.

Africa Check has asked the statistics agency to clarify the various figures. We will update this report with their response.

How many second-hand cars were imported?

The number of imported used cars could be calculated by deducting the number of imported new cars from the total number of imported cars, the Kenya Revenue Authority told Africa Check.

For the number of imported new cars, the authority directed us to the Kenya Industry Motor Association, an umbrella body for carmakers and dealers.

The association estimated that its members accounted for about 96 per cent of all new motor units sold in Kenya, Frances Cattermole, an official, told us. The organisation’s data shows 10,722 cars were imported into Kenya in 2017, and 14,003 in 2018. These ranged from saloons to buses, trucks and prime movers.

Using these and the various official figures, all for 2017, the number of used car imports could have ranged between 70,863 and 103,411.

What does the import duty total?

How much revenue did the government earn from taxing motor vehicle imports?

The revenue agency said it received Sh47.2 billion in tax on all imported vehicles, both new and used, in 2016/17. In 2017/18 the figure was Sh47.4 billion.

The data isn’t divided according to new and used vehicles, Paul Agonda, a Kenya Revenue Authority spokesperson, told Africa Check.

The Kenya Auto Bazaar Association’s Sh49 billion estimate of “annual” taxes on used car imports is higher than the taxman’s Sh47.4 billion figure (in 2017/18) for taxes on all vehicle imports. 

The revenue agency counts imported new cars in its figure, so the tax from used cars is likely to be even less.

Conclusion

The Sh49 billion claimed for used car tax is more than total tax paid for both new and used car imports

Urging a review of rules they say will hurt their business, used car dealers in Kenya have pleaded with the country’s president for relief.

They claimed to pay more than Sh49 billion in taxes annually. But the tax agency told Africa Check it collected an average of Sh47.3 billion in the last two financial years.

This figure is for both new and used car imports, meaning the tax raised from second cars is likely even lower.

We therefore rate this claim as incorrect. While the dealers certainly feel threatened, inaccurate data can only hurt their cause.