Aug 10, 2022

Mawazo Writing Africa

Writing about the main

Uganda U-turn on car imports upsets Kenya vehicle dealers

Uganda has made a U-turn, easing the strict import requirements it imposed on vehicles over the age of nine entering its market from July, a blow to Kenyan dealers who had hoped to avoid restrictions on sales to benefit from such cars.

The Uganda Revenue Authority (URA) issued a directive in April according to which the import of vehicles older than nine years must be declared in the Single Customs Territory (SCT) of the East African Community – allowing members of the bloc to collectively collect customs taxes – from 1 July 2022.

“According to section 64(k) of the East African Customs Management Regulations 2010, the Ugandan tax authorities want general publicity with effect from July January 2022, motor vehicles that are nine years or older from the date of manufacture will no longer be processed under the storage regime,” said URA i In a statement in April.

“Customs clearance of such motor vehicles will be facilitated under the Single Customs Territory Agreement where taxes will be paid upon arrival at the East African Community’s port of entry,” added the Ugandan tax official.< /p>

This had raised hopes of a better fate for Kenyan traders who have long been harassed by smuggled units from the neighboring country.

Read:EAC bans duty-free car imports from SA

But in a twist that has dampened the hopes of car dealers in Kenya, URA has backed away from its previous policy, saying the rule will now apply to vehicles over 13 years old.< /p>

“The general public is hereby informed that, beginning July 1, 2022, motor vehicles 13 years and older of manufacture date will no longer be deleted from the inventory system,” URA said in a June notice 2022 submitted to Smart Business.

“The public notice applies to categorized motor vehicles under Part (b) of the Fourth Schedule to the Traffic and Road Safety Act, 1998 (Amendment) Act (TRSA) pursuant to Section 14B of the TRSA. Consequently, motor vehicles nine to twelve years old must be stored for a maximum period of six months under Section 57 of the East Africa Community Customs Management Act, 2004,” she added.

The latest directive gives Ugandan dealers a window to import old cars that often end up in the Kenyan market – effectively distorting the business.

“URA’s previous policy had given us some hope, the danger of smuggling , especially of models such as Toyota Spacio, Toyota Wish, Toyota Premio and Toyota Alphard. The new policy destroys our hope,” Phillip Mulei, a motor vehicle dealer in Nairobi, told Smart Business.

Currently, importers of vehicles destined for the Ugandan market are allowed to store their units in storage units approved by tax authorities – commonly referred to as a bonded warehouse – pending payment of duties.

This has been popular with many Ugandan importers because it relieves liquidity pressure on them and encourages them to import more units, some of which are later from smart ones dealers into the more lucrative Kenyan market.

Read: Uganda tightens rules on importing used cars

While most of the used cars originating in Uganda are cheaper, they are much older than those on the Kenyan used car market because Kampala has no age limit for imported used cars.

This means that you can ship a much older car through Uganda, can declare a low customs value and pay much lower taxes compared to importing directly into Kenya where the max age limit for used cars has been set at eight years – meaning the car market in Kenya has newer and more expensive vehicles.

However, under the SCT system, conditions for Ugandan importers are becoming tougher. In this regional system, importers in each of the EAC partner countries are required to file import declaration forms in their respective home countries and pay the appropriate taxes in advance to facilitate the export process.

The respective tax authorities would then issue a Road Manifest against those of import documents filed electronically with tax officials in the importing country to allow cross-border movement.

This is expected to impact the cash flow of many car dealers in Uganda and discourage them from importing large numbers of cheaper, older and inferior vehicles that popular with black market buyers, particularly in western Kenya.

In Kenya, only new vehicles are held in bonded warehouses, while second-hand vehicles must clear customs within 21 days or incur additional charges

Also read: No agreement on a common age limit for cars s

Kenya is also the only East African country with strict age limits for car imports in the manufacture of vehicles, making the country expensive and lucrative for the black market sale of cars destined for local export.

EAC member states have failed to push through proposals to lower the age limit for imported used cars to five years by 2021.

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Uganda’s reverse import policy was seen as a measure to lower the age limit for the Bringing the country closer to the EAC resolution for cars, which recommended reducing the age limit for imported cars to five years by 2021.

< p>It was only in 2018 that Uganda passed a law restricting the import of vehicles that were manufactured more than 15 years ago.

Kenya is pushing regional countries to adopt the EAC recommendation and has already announced plans to limit imports of vehicles over the age of used vehicles with a Engine displacements over 1500cc, which are imported at five years old instead of the current eight.

Tanzania allows the import of cars that are up to 10 years old, while Burundi, Rwanda and South Sudan have no formal ones Age limits for used cars. The disparity in age limits across the region has fueled tax and regulatory arbitrage to bring in cheaper and older cars.

Many Kenyans are reportedly engaged in tax and regulatory arbitrage to bring in cheaper and older cars.

Recent increases in import tariffs for cars have made Kenya’s black market attractive to dealers in the region.

Car dealers in Kenya are currently engaged in a legal battle with the Kenya Revenue Agency (KRA ), which in July 2020 published a new Current Retail Selling Price (CRSP) – a database of new car prices in the country, which forms the basis for taxing used cars after accounting for depreciation.

< p>The Car Importers Association of Kenya, representing 80 used car dealers, went to court and obtained orders to suspend the implementation of the new catalogue.

The dealers argue that that the new CRSP is inflated and has the potential to increase the final prices of some car models by hundreds of thousands of Shi llings.

This story was first published by Nation.Africa.