Taxes that are meant for used vehicles are set to decline drastically in the approaching months due to a ruling of the Mombasa High court stated the present formula for tax calculation been used by Revenue Authority of Kenya (KRA) not legal.

Apparently, the man in charge of the taxes has employed quotations for prices of brand new vehicles from Kenya-based Toyota as the benchmark for computing import taxes in addition to other taxes levied on used cars that are been brought in from markets overseas.

Dealers of used car explained in courts about the quotations, which is referred to as the current recommended selling prices or (CRSP), are being inflated and consequently causes in unreasonably higher taxes which amounts into millions in shillings for import car dealers.

Also, they submitted that the procedure is not being supported by the constitution since it leaves them out, which implies that public participation is absent.

In a lawsuit by the Kenya’s Car Importers Association, the judged adjudicated to the petitioner’s favour and noticed that the used car taxation of KRA is not fair and it is arbitrary.

Justice Eric Ogola this past Wednesday ruled the CRSP to be unlawful and consequently commanded KRA to have a consultation with dealers of used car in the case that they are about to create the subsequent price list.

“ The declaration for the sake of continuity in addition to the public interest, the transactions had already been put in effect through the CRSP…will still be applicable prior to the time that the respondents establishes another value of CRSP according to the law in a space of 12 months starting from the judgment date” he stated.

Second-hand vehicle dealers stated that the supplied prices by the recently-appointed sellers of vehicle to KRA usually are occasionally more than the real prices from the showroom.

There is anticipation that through forcing the participation of the public in setting up the CRSP, this procedure will see an increased transparency and lead subsequently to reduced taxes of models which have been overcharged unfairly recently.

“Taxes pegged on several models apparently had been high unfairly. We tried to let KRA know that their CRSP sources are interested stakeholders that had the prices increased,” stated Charles Munyori, who is a secretary-general for the association of Kenya’s Auto Bazaar.

The present CSRP has a list of hundred models of vehicle like the Toyota LJ Prado powered by the diesel engine of three-litre that sports a showroom retail price of 9.7 million Shillings. Other models are Mercedes Elegance C200 that has a petrol engine of a litre capacity of 1.79 (7.3 million Shillings) as well as Toyota 4WD Vanguard that has a petrol engine of two litres (5.2 million shillings).

The lawsuit stressed the legal make-up of the present system of taxes that has made several importers leave behind their vehicles in the port right after they have been charged a price that seemed ridiculous.

Al-Husnain car dealers, as an example, imported the Toyota V8 Land Cruiser powered by the petrol engine with a capacity litre of 4.6. The dealer of the second-hand car had shelled out taxes to the amount of about 4.1 million shillings which was based on the recommended retail price value of 14.4 million shillings for the same model also in Kenya.

However, KRA asked the car dealer for further taxes, stating the taxes for the car ought to be based from the upper selling price value of 17.9 million shillings designated for the Toyota VX Land Cruiser.

The unfair taxman

The judge discovered the taxman to be shifting the goalposts unfairly so as to receive taxes with higher values, also claiming the fact that the vehicle had other added features and proceeded to putting together false data to back his claims.

“This court has been satisfied by the fact that respondents are legally unable to elicit further taxes from car dealer – Al-Husnain car dealership based on a data obtained from Face book, or data that are brought from questionable sources by Kenya-based Toyota, the competitors of the petitioner.”

“Clearly, the criteria of getting such a taxation is a guesswork that result to ambiguity that has caused several importers not been made to pay, whereas others were mandated to pay up.”

The judge also said that the present tax process of the motor vehicle, if left to persist, will cause unfairness, bias as well as inequity in computing of due tax.

Dealers of used car have for a long time pointed fingers at their formal colleagues with giving  the said taxman with the unreasonable prices for the models being sold by them, with KRA making use the information as the basis for computing import duties.

Sellers of used vehicle counted their losses due to this price disparity by several hundred thousands of shillings to millions in shillings for every one of the car that was imported.

The dealers often view this as an attempt of their formal colleagues to increase prices of car models that are used and make them uncompetitive from the perspective of customers that are sensitive to prices.

Dealers of new vehicles contrariwise have said that the difference in prices is because of the event that the CSRP is a reflection of an image of how they operate.

They said that the yardstick prices are unchanging and do not reflect the changes of the showroom prices throughout the year due to factors such as the rate of exchange as well as competition, causing the disparity.

Used car typically leads to a 25 percent import duty, with 20 percent of excise duty as well as a 16 percent VAT that can be cumulatively paid in that sequence.

A car’s value is computed from the specific model’s CRSP, adjusted for the sake of depreciation with a 10 per cent yearly rate. Freight as well as insurance charges are included to the CRSP that has been adjusted to get the value for customs.

Used cars that are imported typically have an eight years price cap which starts from the manufacture date.

A reference price that is higher, however, can inflate taxes as well as the eventual benchmark prices of used cars. However, formal car dealers, point fingers at the taxman, stating that the present procedure of computing the yardstick prices also hurts their business.

“I am really not surprised if the CSRP shows some disparity from the prices of the showroom,” said Dennis Awori, the chairman of Toyota Kenya, who spoke to Business daily during a recent interview.

“KRA requested for information on pricing at some point and it goes for months without being updated. In the provisional period, prices vary because of issues like the rate of foreign exchange,” he had stated.

Mr. Awori also stated that some model’s CRSP are lesser by a third of the value in comparison to prices for auction in original markets such as Japan, saying further that had gone on to put used car dealers at unnecessary advantage.

He had stated that the taxman need to use the auction prices from overseas to compute the custom amount of the imported used car, saying that it would lead to better equality for both segments of car markets.