CS Rotich targets fuel guzzlers with 35 per cent excise duty

Government vehicles at a parking lot.

Treasury Cabinet Secretary Henry Rotich is going after extravagant motorists, hitting fuel guzzlers with more excise duty.

As part of his new taxation measures for financial year 2019/20, the CS increased excise duty on vehicles with engine capacity of 1500cc from 20 to 25 per cent. It is the same duty that will be paid by those buying vehicles of an engine capacity of 3000cc, a reduction from 30 per cent that had been introduced in the previous financial calendar. 

However, cars with an engine capacity of more than 3000cc will part with an excise duty of 35 per cent the value of the car.

Most cars on Kenyan roads have an engine capacity of 1500cc and below and few have a capacity of more than 3,000cc, according to car dealers we spoke to.  

In his financial year 2018/19 budget statement, Rotich increased excise duty from 20 per cent to 35 per cent on private passenger motor vehicles whose engine capacity exceeds 2500cc for diesel and 3,000cc for petrol powered vehicles.

However, cars with an engine capacity of between 1500cc and 3000cc will pay an excise duty of 25 per cent, while those with an engine capacity of over 3,000cc will pay 35 per cent from 30 per cent.  

Initially, all vehicles, regardless of their engine rating, attracted a uniform excise levy of 20 per cent.

“To ensure progressivity which is a cardinal principle of taxation, I propose to increase excise duty from 20 per cent to 30 per cent on private passenger motor vehicles whose engine capacity exceeds 2500cc for diesel and 3000cc for petrol powered vehicles,” said Rotich in his budget speech last year.

But now, motor vehicles with a fuel capacity of more than 3000 CC will attract even high duties.

Besides such car models as BMW, Prado 2006 and Toyota Prado, fancied by CEOs and politicians, trucks and buses will also be hit by the new 35 per cent excise duty.

“Treasury is taking advantage of the middle-class-level citizens with a desire to live large,” said Samwel Mwaura, a tax expert at Grant Thornton, an audit firm.

He said Treasury knows that for such consumers, an increase in duties is not much of a turn off. You hit them with punitive tax, be it on their fine wines or whiskey or expensive cars, they will continue using them.

“I don’t think the measure will reduce the number of these expensive cars on the road,” he said, adding that Rotich might have run out of taxing options thus going after the guzzlers.

Some experts said the measure might push some consumers, especially firms keen to cut costs, to go for low capacity engines.  

“It works for a section of people especially corporates who feel the 35 per cent is very high so they opt for lower models which can still deliver the work,” said Managing Director of GM East Africa Ltd Rita Kaveshe.

“But for individuals who can afford and feel that they must have that kind of car, they will still import,” she said.

Experts, however, do not think this segment of the market is so big to make much of an impact on Kenya Revenue Authority (KRA)’s coffers. 
Charles Munyori of Car Bazaar said 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).