No relief for buttered auto industry as excise duty awaits president’s assent

By Steve Umidha

Kenyans are buying new cars and trucks at the strongest rate and spending more on SUVs and luxury models

BMI Research- a subsidiary of Fitch Group Company paints a rosy picture, holding an upbeat outlook for the Kenyan automobile sector due to its accelerating private consumption rates, rising fixed investment and additional local government fleet purchases.

The firm forecasts that total first vehicle registrations including new and used vehicles- growth over the period 2015-2019 will average 12.7 percent to more than 172,000 units.

“Given this improving picture of growing consumer, business and government spending we forecast passenger car sales to expand 11.2 percent in 2015 to 77,244 units and 11.0percent in 2016 to 85,755 units,” reads the report in part.

But there are warning signs on the horizon.

The passing of excise duty Bill proposing higher taxes on motorcycles and motor vehicles may not see the auto industry realize those targets even as manufactures await presidential assent to pass on the taxes to consumers.

Industry players have criticized the bill which sees an introduction of Sh10, 000 excise tax on motorbikes and an earlier proposed excise duty on vehicles of Sh200, 000 for cars more than three-year-olds and Sh150, 000 for new vehicles to replace a blanket charge of 20 percent charged together with VAT and customs duty –that had been proposed by treasury in June.

Stephen Mbuthi, motor consultant believes the tax regime will push more Kenyans into buying new cars and would advance vehicle sales growth, especially in the luxury car segment which jumped 25 percent to 192 units in the first half of the year, compared to 153 units sold the same period last year, which overtook the overall new vehicle market whose sales rose by 13.2 percent to 10,098 units.

“It’s a good move but it needs more development; commercial vehicles shouldn’t be slapped with the excise tax, private cars should to prevent importation of new private cars that course traffic snarl-ups,” he says, adding that the situation will create negative sentiments in the domestic market even though car buyers will continue to buy cars but sales volumes for second-hand cars will be a letdown.

Dealers in the motorcycle taxis, otherwise known as boda bodas have also reacted harshly to the bill saying it will hurt their businesses and render most jobless since a good number depend on the boda boda trade for survival.

“We are still feeling the pinch of the dollar-shilling effect, sales have dropped and the excise duty is going to cripple our businesses. Majority of young people who we sell these bikes to depend on them for survival,” Makindu Motors ltd chief executive Stephen Ngei told ABF.

Demand for the motorcycles has been steady over the years until the introduction of VAT last year to cut sales of new bikes by half, and the latest excise duty will throw many dealers especially independent merchants out of business, he says.

Consumers will feel the biggest pinch when manufactures pass on these new costs.

The cheapest imported bike currently retail at an average of Sh 60,000 while the most expensive at Makindu motors retails at Sh100, 000 with dealers like Yamaha Kenya, Honda Motorcycle Kenya believed to be selling higher on their units.

“I sold 17,000 bikes last year and 19,000 units a year earlier which was higher before VAT was introduced, now I even doubt if I will reach my target of 20,000 units by year-end against 14,000 units have since sold this year,” he says.

The industry directly employs over 5,000 people and is expected to rise to 20,000 if a plan by Kenya Association of Manufactures to assemble them locally makes it to the implementation stage.

“We rely on these bikes, and we depend on bank loans while purchasing and if it’s increased by a further Sh10, 000 it will affect us,” said one motorist.

Statistics show that 111,124 motorcycles were registered in Kenya last year on the basis of the average import of motorcycle and yet over Sh2billion were paid to the treasury in form of direct taxes only.