Times Tower in Nairobi, the headquarters of Kenya Revenue Authority (KRA). Picture taken on Thursday, October 15, 2020. PHOTO | DENNIS ONSONGO | NMG
The Court of Appeal has extended a freeze on Kenya Revenue Authority’s (KRA) move to raise taxes on used motor vehicle imports by adjusting the base on which various levies are computed.
The taxman had in July 2020, published a new Current Retail Selling Price (CRSP) — a database of prices of new vehicles in the country that forms the basis of taxing second-hand units after taking into account depreciation.
Car Importers Association of Kenya, which represents 80 dealers of used vehicles, moved to court and got orders suspending the implementation of the new catalogue.
Justices Patrick Kiage and Roselyn Nambuye declined to lift the order stating that KRA would impose the higher taxes after the conclusion of the suit.
“The loss to be suffered by the public and the upsetting of good order override any loss apprehended to be suffered by the applicants. It is a loss that can be recovered as the government has sufficient machinery to do so,” Justice Kiage said in the ruling.
The dealers argue that the new CRSP is inflated and has the potential to increase the final prices of some car models by hundreds of thousands of shillings.
The suit over the higher taxes comes as used car prices in Kenya have jumped by an average of 37 percent over the past six months as demand outstrips supply globally on production cuts.
This has pushed the cost of low range vehicles like Nissan Note and Vitz above the Sh1 million mark.
The Court of Appeal judges said the freeze order issued by Justice Thande Mugure was done in the interest of the public.
Justice Kiage said lifting the freeze would amount to predetermining the matter, which remains pending at the High Court.
“Not only will issuing the stay be contrary to the public interest, but it will also upset good order as created by the conservatory order,” he added.
The prices of used vehicles are dependent on many factors, including dealer margins, the age of the car and a series of cumulative taxes.
Imports of second-hand vehicles are capped at eight years from the date of manufacture.
The tax value is calculated based on the CRSP — which should match showroom prices — for that specific model, adjusted for depreciation at a rate of 10 percent per year. Insurance and freight charges are added to the adjusted CRSP to arrive at the customs value.
The vehicle then attracts an import duty of 25 percent, excise duty (ranging from 25 percent to 35 percent) and value-added tax of 16 percent, payable cumulatively and in that order.
A higher CRSP quote has the effect of inflating taxes and the ultimate yard prices of second-hand cars. The association obtained showroom prices independently and compared them with the KRA’s list to build its case, the court was told.
“The petitioner further accused the respondent (KRA) of increasing the current CRSP values by 10 percent to 40 percent, which is contrary to the inflation rate of seven percent recorded between 2018 and 2019,” says the association in court papers.
“Some of the CRSP values given are higher than the value of purchasing a new motor vehicle from the franchised (local motor vehicle dealers).”
The dealers also complain of not having been consulted during the preparation of the CRSP as required by the Constitution.
In its defence, the KRA said it conducted sufficient public participation before publishing the catalogue.
The taxman told the court that it uploaded the draft price guide on its website on April 20 and did a broadcast on Simba (its tax platform) on April 21, seeking stakeholder comments and received an objection from the petitioner.
Used vehicle dealers have accused the taxman of relying on inflated showroom prices from new vehicle dealers as the basis for calculating taxes on second-hand cars shipped in from overseas markets.
The suspension of the new CRSP has saved importers from higher taxes as the case continues amid record vehicle prices.
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