Local car assemblers get major tax exemptions

Local motor vehicle assembly

Local motor vehicle assemblers have won deep concessions after President Uhuru Kenyatta accepted and signed into law proposals targeted at improving sales of the units they produced.

Photo credit: File | Nation Media Group

Local motor vehicle assemblers have won deep concessions after President Uhuru Kenyatta accepted and signed into law proposals targeted at improving sales of the units they produced.

The Finance Act 2022, signed last week, exempts locally assembled cars from major taxes that are applicable on fully-built units imported from overseas markets such as Japan and South Africa.

The Head of State fully adopted proposals by the Finance and Planning Committee of the National Assembly to deepen concessions for assemblers who qualify for the tax incentives by freeing them from a requirement compelling them to source at least 30 percent of spare parts locally.

“That, clause 35 of the Bill be amended ...and substitute therefor the words “and whose ex-factory value comprises at least thirty percent of local content” and inserting the words “Where local content means “parts designed and manufactured in Kenya by an original equipment manufacturer operating in Kenya,” the committee, had said in a recommendation of the Finance Bill 2022 which has since become law.

Incentives

Treasury Cabinet Secretary Ukur Yatani had in April announced plans to exempt locally assembled passenger cars from VAT and excise taxes.

“In order to encourage more investment, especially in the manufacture of passenger motor vehicles locally, I propose to exempt from VAT inputs and raw materials used in the manufacture of passenger motor vehicles,” he said in his Budget speech for the financial year 2022/23.

“Additionally, I propose to exempt locally manufactured passenger motor vehicles from VAT,” he added.

Presently, cars manufactured abroad attract import duty of 25 percent, excise duty of 20 percent, and VAT of 16 percent, payable cumulatively, respectively.

Sales growth

Assemblers of passenger cars such as Simba Corp and DT Dobie enjoy exemption from the 25 percent import duty.

Data shows that sales for locally assembled vehicles rose to a record 70.6 percent of the total sales in 2021, moving 10,054 units compared to 4,195 units of fully-built imported vehicles.

The major assembly plants are Nairobi’s Isuzu, Mombasa’s Associated Vehicle Assemblers, Thika’s Kenya Vehicle Manufacturers.


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