Gov’t scraps excise tax on locally assembled cars, motorcycles

The government has scrapped the excise tax on locally assembled cars and motorcycles in a bid to spur the manufacturing sector.

The removal of the excise duty is contained in the Finance Act 2016, signed into law by president Uhuru Kenyatta last week after it was presented by Treasury Cabinet Secretary Henry Rotich during the 2016/17 budget.

Assemblers had been forced to part a flat rate of Sh150,000 per vehicle, pushing up the cost of locally assembled cars.

Motoring Consultant Michael Mwai said the incentives to the industry will spur the creation of a vibrant vehicle assembly industry.

“There will be a lot of incentives that will be transferred to the manufacturer to be able to assemble those cars locally. So the car will cost a little less because the government will give the manufacturer a lot of tax breaks,” Mr Mwai said.

Before the finance act was signed into law, the Kenya Revenue Authority had given manufacturers an exemption pending formalization of the law.

The government is seeking to create a vibrant local car assembly industry, with tax breaks likely to entice car makers.

Two weeks ago the government signed a joint venture agreement with German car manufacturer Volkswagen to produce the Vivo locally, with plans to introduce other models.

The new law also exempts completely knocked down vehicles, making it easier for car manufacturers to bring in parts to assemble cars locally.

Mr Mwai said this is likely to create a vibrant after parts industry with local entrepreneurs taking up the opportunity to manufacture parts.

“For example the seats can be done locally, the exhaust pipes can be done locally. but for them to invest in building their own capacity to bringing down the cost of product and increase the quality, the government needs to show the will,” he said.

Motorist Association of Kenya Chief Executive Officer Peter Murima said the move has been long overdue adding that the cost of new cars and motorcycles would drop significantly.

“In the long run cars will be less taxed unlike now and the exchequer will get more because the country is getting value for its money,” Mr Murima said.

For motorcycle assemblers the move will come as good news after previously having to part with Sh10,000 a unit for locally assembled bikes.