Treasury Fails To Meet Target On Luxury Cars Bet

The Kenya Revenue Authority only netted Ksh91 million on luxury vehicle purchases in the year to June in a failed bet on the high-end car market to boost revenues. Treasury Cabinet Secretary Henry Rotich had decided to go after extravagant motorists, hitting fuel guzzlers with more excise duty. The excise duty on engine capacity beyond 2,500cc was increased to 30 per cent from 20 percent charged previously.

“The revenue implication for the increased rates of excise duty on vehicles above 2500 cc has been Sh91 million,” Maurice Oray, KRA deputy commissioner for corporate policy told Members of Parliament last week.

The government implemented the tax measures  in September following the passage of Finance Management Act 2018 claiming the aim was to discourage direct importation of the cars and instead promote local motor vehicles assembly and create jobs.

After the tax hike, car dealers passed on the increase in excise taxes on the expensive cars onto customers in the form of higher pricing, cutting down sales.  This year, sales of new luxury cars fell by 50 percent in the six months to June industry data shows. BMW, Mercedes and Land Rover declined to 69 units against 137 in the six months of 2018.

Experts had previously made it public they did not expect that segment of the market was that big to make much of an impact on Kenya Revenue Authority’s coffers. “With the new tax measures, a car valued at Sh1 million will attract an additional sh241,000 in taxes, including import duty, excise duty and value-added tax (VAT).” Charles Munyori of Car Bazaar said.