This archive report was first published on 9 September 2019.
The Kenya Revenue Authority's ambitious plan to boost revenues by targeting luxury car owners has hit a snag, with the agency collecting a mere Ksh91 million in the six months to June.
According to Maurice Oray, KRA's deputy commissioner for corporate policy, the revenue implication of the increased excise duty on vehicles above 2,500cc was indeed Sh91 million, as he told Members of Parliament last week.
The government had implemented the tax measures in September 2018, following the passage of the Finance Management Act, with the aim of discouraging direct importation of luxury cars and promoting local motor vehicle assembly, thereby creating jobs.
However, the tax hike had the opposite effect, with car dealers passing on the increase in excise taxes to customers in the form of higher pricing, leading to a significant decline in sales. Industry data shows that sales of new luxury cars fell by 50 percent in the six months to June, with BMW, Mercedes, and Land Rover sales declining to 69 units against 137 in the same period in 2018.
Experts had previously warned that the luxury car market was not significant enough to make a substantial impact on the Kenya Revenue Authority's coffers. As Charles Munyori of Car Bazaar pointed out, 'With the new tax measures, a car valued at Sh1 million will attract an additional Sh241,000 in taxes, including import duty, excise duty, and value-added tax (VAT)'.
