KRA’s Tax on Second-hand Automobiles Paused by Kenyan Court

Kenya Revenue Authority

The Kenyan Court of Appeal has prolonged a moratorium or is a legally authorized period of delay on the Kenya Revenue Authority’s (KRA) decision to increase taxes on used motor vehicle imports by changing the basis on which different levies are calculated.

The taxman announced a new Current Retail Selling Price (CRSP) in July 2020, which is a database of new car pricing in the country that is used to tax used automobiles after depreciation is taken into account.

The Kenyan Car Importers Association, which represents 80 used car dealers, went to court and obtained an injunction to prevent the new catalogue from going into effect.

The injunction was not lifted by Justices Patrick Kiage and Roselyn Nambuye, who stated that KRA would levy the extra taxes when the lawsuit was resolved.

“The public’s loss and the disruption of good order outweigh any potential loss to the petitioners. It is a loss that may be recovered since the government possesses the necessary apparatus “In the judgement, Justice Kiage stated.

The dealers claim that the new CRSP is exaggerated, and that it has the potential to raise the final pricing of some automobile models by hundreds of thousands of shillings.

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The lawsuit against the higher taxes comes as used car prices in Kenya have risen by an average of 37% in the last six months, as worldwide production cuts have caused demand to surpass supply.

Low-range automobiles such as the Nissan Note and Vitz have now surpassed the KSh1 million threshold as a result of this.

The Court of Appeal justices said that Justice Thande Mugure’s frozen decision was made in the public interest.

Lifting the freeze, according to Justice Kiage, would amount to a predetermination of the case, which is still proceeding before the High Court.

“Issuing the stay will not only be against the public interest, but it will also disrupt the good order established by the conservatory order,” he added.

The cost of a used automobile is determined by a number of factors, including dealer margins, the car’s age, and a series of cumulative taxes.

Second-hand automobile imports are restricted to a period of eight years from the date of production.

The tax value is computed using the CRSP for that specific model, which should match showroom pricing, and depreciation at a rate of 10% every year. The customs value is calculated by adding insurance and freight charges to the modified CRSP.

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The car is then subject to a 25% import charge, a 25% excise duty (varying from 25% to 35%), and a 16% value-added tax, all of which must be paid in that order.

A higher CRSP quotation raises taxes and, as a result, the eventual yard costs of used automobiles. According to the court, the group collected showroom pricing on its own and compared them to the KRA’s list to develop its case.

In court filings, the group claims that “the petitioner further accused the respondent (KRA) of boosting the current CRSP values by 10% to 40%, which is contradictory to the inflation rate of 7% recorded between 2018 and 2019,” according to the association.

“Some of the CRSP values provided are greater than the cost of a new car purchased from a franchised (local motor vehicle dealer).”

The dealers further claim that they were not consulted throughout the CRSP’s drafting, as required by the Constitution.

The KRA defended themselves by claiming that it had adequate public consultation before issuing the catalogue.

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The taxman informed the court that it posted the draft pricing guide on its website on April 20 and broadcast it on Simba (the tax platform) on April 21 to get stakeholder feedback, and that the petitioner objected.

The taxman has been accused by used car dealers of using inflated showroom pricing from new car dealers as the foundation for computing taxes on used automobiles imported from outside markets.

As the lawsuit continues despite record car prices, the postponement of the new CRSP has rescued importers from increased taxes.

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