Court extends freeze on KRA’s higher tax for used cars

Economy

Court extends freeze on KRA’s higher tax for used cars


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Times Tower in Nairobi, the headquarters of Kenya Revenue Authority (KRA). Photo taken on Thursday, October 15, 2020. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • Judges Patrick Kiage and Roselyn Nambuye refused to overturn the order stating that the KRA would impose the higher taxes following the conclusion of the case.
  • The dealers claim that the new CRSP is inflated and has the potential to increase the final prices of some car models by hundreds of thousands of shillings.
  • The judges of the Court of Appeal said that the order of confirmation issued by Justice Thande Mugure was done in the interest of the public.

The Court of Appeal has extended a waiver on the Kenya Revenue Authority (KRA)’s move to increase taxes on imports of used cars by adjusting the basis on which various levies are calculated.

The taxpayer had published in July 2020, a new Current Retail Selling Price (CRSP) – a database of prices of new cars in the country that forms the basis for the taxation of second-hand units after deducting depreciation.

Car Importers Association of Kenya, representing 80 dealers of used cars, moved to court and received orders delaying the implementation of the new catalog.

Judges Patrick Kiage and Roselyn Nambuye refused to overturn the order stating that the KRA would impose the higher taxes following the conclusion of the case.

“The loss suffered by the public and the lifting of good order override any loss that is claimed to be suffered by the applicants. It is a loss that can be recovered if the government has enough machines to do so,” Justice Kiage said in the ruling.

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

The case over the higher taxes comes as prices for used cars in Kenya have jumped by an average of 37 percent over the past six months, as demand overshadows supply worldwide on production cuts.

This has pushed the cost of low-range cars like Nissan Note and Vitz above the Sh1 million mark.

The judges of the Court of Appeal said that the order of confirmation issued by Justice Thande Mugure was done in the interest of the public.

Justice Kiage said lifting the freeze would amount to pre-trial cases, which are still pending before the Supreme Court.

“Not only will the issuance of the residence be in conflict with the public interest, but it will also disrupt the proper order as created by the conservatory order,” he added.

The prices of used cars depend on many factors, including dealer margins, the age of the car and a series of cumulative taxes.

Imports of used cars are limited to eight years from the date of manufacture.

The tax value is calculated on the basis of the CRSP – which must correspond to showroom prices – for that specific model, adjusted for depreciation at a rate of 10 percent per annum. Insurance and freight costs are added to the custom CRSP to reach the customs value.

The car then pays a 25 percent import tax, excise duty (from 25 percent to 35 percent) and tax on the added value of 16 percent, payable cumulatively and in that order.

A higher CRSP quote has the effect of inflating taxes and the ultimate yard prices of used cars. The association independently received showroom awards and compared them to the KRA’s list to build its case, the court was told.

“The petitioner further accused the respondent (KRA) of increasing the current CRSP values ​​by 10 percent to 40 percent, which is contrary to the inflation rate of seven percent recorded between 2018 and 2019,” the association said in court papers.

“Some of the stated CRSP values ​​are higher than the value of buying a new motor vehicle from the franchise (local car dealers).”

The dealers also complain that they were not consulted in the preparation of the CRSP as required by the constitution.

In its defense, the KRA said it had conducted sufficient public participation before publishing the catalog.

The tax office told the court that on April 20, it uploaded the draft pricing guide on its website and on April 21 made a broadcast on Simba (its tax platform), to seek comments from stakeholders and receive a complaint from the petitioner.

Used car dealers have accused the tax authorities of relying on high showroom prices from new car dealers as a basis for calculating taxes on second-hand cars shipped from foreign markets.

The suspension of the new CRSP has saved importers from higher taxes, as the business continues amid record prices for cars.

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