How the Price of New Cars Will Change as Import Duty Increases From 25 to 35%

If you have been thinking of buying an imported car, you might have to dig deeper into your pockets now that the Kenyan government has increased the import duty for motor vehicles.

The East African Community (EAC) approved an application by Kenya to raise the duty on motor vehicles under the common external tariff from 25% to 35%. 

The change, which went into effect on July 1st, is set to increase the price of imported vehicles, including those carrying 10 or more passengers, station wagons, racing cars and those involved in transporting goods, among others, by over 10%.

As the shilling also depreciates against the dollar, the increase in import duty means Kenyans aspiring to own a car will likely face a significant hurdle due to the escalating costs of importing vehicles. 

This article will explore how the price of imported cars will change due to increased import duty and what steps you can take to ensure you achieve your car ownership goals.

Read Also: What to Look Out For When Buying a Second-Hand Car in Kenya 

Impact of Import Duty Increase on Car Buyers in Kenya

Robert Waruiru, the Managing Partner of Ichiban Tax and Business Advisory and Chairperson of the Institute of Certified Public Accountants of Kenya Public Finance Committee, says the increase of import duty will see imported of imported cars rise by double digits. 

"The increase in customs duty on imported cars will translate to about a 14 percent increase in the cost of importing vehicles,” he told Business Daily.  

The increased rates will also have a multiplier effect on other taxes charged on imported vehicles. 

Besides import duty, vehicles also incur excise duty, which varies from 25 percent to 35 percent based on the engine size. Additionally, a value-added tax (VAT) of 16 percent is applied cumulatively and follows the sequence of import duty, excise duty, and then VAT. Consequently, any modification in the import duty rate will have a compounded effect on the excise and VAT charges, affecting the overall taxation amount.

This is exclusive of Railway Development Levy (2%) and Import Declaration Form (3.5%) fees which car buyers are also expected to pay but are charged on the customs value of the imported car.

Let’s see an example of how this change will increase car prices. Suppose you want to import a 2016 Subaru Impreza with a Customs value (CIF) of Ksh800,000. How much extra are you likely to pay due to increased import duty?

If you imported your car before July 2023, the total duties you would incur were as follows:

Customs value (CIF): Ksh800,000

Import Duty 25%: Ksh200,000    

Excise Value (CIF + Import Duty): Ksh1,000,000

Excise Duty 25% of Exercise Value: Ksh250,000

VAT Value (Excise Value + Excise Duty): Ksh1,250,000

VAT 16% of VAT Value: Ksh200,000

RDL 2% of CIF: Ksh16,000          

IDF Fees 3.5% of CIF: Ksh28,000           

Total Duties Payable (Import Duty + Excise Duty + VAT + RDL + IDF): Ksh694,000

Grand Total = 1,494,000        

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From the example above, the total amount you would pay in taxes when you import the car would be Ksh694,000. If you add the CIF cost you spent to import it, the total cost of your car could be Ksh1,494,000.

If you imported the same car today, the total duties you would incur are as follows:

Customs value (CIF): Ksh800,000

Import Duty 35%: Ksh280,000

Excise Value (CIF + Import Duty): Ksh1,080,000

Excise Duty 25% of Exercise Value: Ksh270,000

VAT Value (Excise Value + Excise Duty): Ksh1,350,000

VAT 16% of VAT Value: Ksh216,000

RDL 2% of CIF: Ksh16,000          

IDF Fees 3.5% of CIF: Ksh28,000           

Total Duties Payable (Import Duty + Excise Duty + VAT + RDL + IDF): Ksh810,000

Grand Total= Ksh1,610,000

Read Also: FULL GUIDE: The Process of Car Financing in Kenya

When you increase the import duty from 25% to 35%, the total duties payable on the Subaru Impreza increase from Ksh694,000 to Ksh810,000. 

If you do the math, the Ksh116,000 jump will represent a tax increase of approximately 16.72%.

DISCLAIMER: The contents on the table are for representation only, and assume the vehicle's value didn’t increase or decrease. It also doesn’t account for other fees you might pay that are not included in the table, including registration fees, sale of number plate pairs, road safety fund, and clearing and forwarding fees. To understand the total cost of importing a car, seek advice from a licenced KRA Customs agent. 

Read Also: 6 Times When Buying a Foreign-used Car Makes Sense

Getting Around the Increased Cost of Imported Cars

If you have been saving to buy a car, but the prices increase is interfering with your goals, here are some strategies you could consider:

Increase your savings rate: Try to save more money each month to accelerate your progress toward your savings goal. For instance, you could cut expenses or look for additional sources of income to save more and achieve your goal within your timeframe. Adjusting your car savings strategy as needed can help you achieve your goal efficiently.

Consider alternative options: If the car you initially wanted to purchase has become too expensive, consider looking for alternative makes or models that are more affordable. You might find a comparable option that meets your needs without breaking the bank.

Wait for sales or promotions: Look out for sales, discounts, or promotional offers on your desired car. Prices fluctuate, and there may be opportunities to buy the item at a lower cost in the future. For example, if the price of the car you intend to buy drops by 15%, the decrease might cancel out the import duty increase and help you afford the car.

Check for Locally Used or Buy Local: Visit car showrooms and compare the prices of locally available cars with the cost of self-importing. This will help you deduce whether buying your preferred car locally is cheaper now that import duty is up. Additionally, evaluate whether buying a used car meets your requirements and budget constraints while helping you avoid some of the burdens of increased import duties.

Read Also: Foreign-used vs Locally-used Car? 8 Things to Consider

Be patient and reassess: If the price of the car continues to rise and it's not within your budget, it may be necessary to be patient and reassess your purchase. If the price increase is significant and you can manage without a car for some time, consider delaying your purchase until prices stabilize or until you have saved enough.

Consider Financing Options: If saving the entire amount seems challenging due to rising prices and you need a car urgently for personal or business use, you may explore financing options like auto loans. Be sure to compare interest rates and terms from different lenders to find the most favourable deal and if it is a viable option for you. You can find lenders that offer both local and import car financing.

WRAPPING UP

With higher import duties, the cost of importing a car will likely increase. If you were considering buying a brand new car, it might be worth exploring domestic alternatives to see if similar car models are available locally. Domestically assembled models could offer competitive pricing, as they may not be subject to the same import duties as foreign-made vehicles.

Importing a car involves navigating complex customs regulations and paperwork. Consider seeking professional advice from experienced customs agents or import specialists to understand better the process and potential financial implications of the increased import duty.