The Kenya Revenue Authority (KRA) has introduced a new tax increment affecting used car importers, implementing a reduction in the maximum depreciation rate from 70 percent to 65 percent of the vehicle’s value. This directive, communicated by the acting commissioner for the Customs and Border Control department, Pamela Ahago, will take effect from September 1, 2023.
Under this updated depreciation rate schedule, taxes on vehicles manufactured in 2016 and imported into the country will surge by over 14 percent. This particular category of vehicles has gained prominence among dealers due to Kenya’s eight-year age limit for used cars.
For instance, an importer of a Toyota Premio with a current retail selling price (CRSP) of Sh3.27 million will now be liable for an estimated Sh1.096 million in taxes starting Friday, marking a notable increase from the previous tax liability of Sh939,221.
The decision to lower the maximum depreciation rate, as stated by the tax authority, aligns Kenya with the depreciation rates observed in other countries within the seven-nation East African Community trading bloc. Importantly, this move amplifies the value applied during import duty calculations.
In a memo to KRA staff, seen by Nairobi Law Monthly, dated August 29, Ahago stated, “In compliance with this [Ruto’s] directive, Kenya Customs will apply the depreciation schedule…that was adopted by the East African Community Council of Ministers.” \
An upswing in import duty inevitably ripples through to excise duty and value-added tax assessments as the value forms the basis for taxation. Ahago emphasized that this enforcement of the new valuation schedule stems from a directive by President William Ruto. The directive was issued during an engagement forum with stakeholders held at the Port of Mombasa on July 29.
This latest tax increment has significant implications for the used car import market, potentially reshaping the dynamics of the industry and impacting consumers. As importers grapple with increased tax burdens, the KRA’s decision is poised to have far-reaching consequences within Kenya’s automotive sector.
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