Luxury car buyers face higher tax bill

Buyers of imported luxury vehicles face a higher tax bill following a proposal by the Treasury to increase excise tax to 30 per cent of private cars with engine capacity beyond 2,500cc.

In the new tax measure proposed yesterday by Treasury Cabinet Secretary Henry Rotich, persons buying imported cars of engine capacity exceeding 2,500cc for diesel and 3,000cc for petrol-powered vehicles will pay 10 per cent more in excise tax.

Previously, all imported vehicles were subject to import duty of 25 per cent, 20 per cent excise tax and valued added tax (VAT) of 16 per cent payable cumulatively in that order. The proposed tax increase is set to raise the cost of a single unit.

This is another attempt by the Treasury that follows 2016 move when it increased excise duty for locally assembled and imported cars but later in September the same year scrapped it after Kenyan based assemblers lobbied. The Treasury, however, reverted to charging 20 per cent of a used imported vehicle’s value instead of the flat fee of Sh200,000.

READ: Sales of luxury cars drop 15pc over polls, rate cap

Calculation of the taxes of imported cars is based on the current retail selling price (CRSP) of specific models, an amount that is adjusted for depreciation at a rate of 10 per cent per year.

Insurance and freight charges are added to the adjusted CRSP to arrive at the custom value. Imports of used cars is capped at eight years from the date of manufacture, a move that has seen most dealers ship in models approaching that age to benefit from lower taxes.