Used Car Dealers Sue KRA over New Tax

Dealers of used cars in Kenya have gone to court against the Kenya Revenue Authority (KRA) over a new formula to calculate the taxes that they say will greatly increase the price of the vehicles and kill their businesses. The Car Importers Association of Kenya (CIAK) has moved to the High Court in Mombasa to stop the impending introduction of the new tax rule that is set to be implemented on July 1, 2025.

The gist of the argument is that KRA has changed the Current Retail Selling Price (CRSP) schedule which is used to determine the import duty of second-hand vehicles. CIAK claims that this new formula which has failed to incorporate the people is discriminatory and will result in increased prices by up to 145 percent in some of the popular models putting an imbalance burden on the ordinary Kenyans. Some of the major issues that dealers are concerned about include:

Unreasonable Price Increase: CIAK indicated that the vehicles most used by the low and middle-income earners including the Toyota Vitz, Mazda Demio and Suzuki Swift will be subjected to outrageous and punitive tax increment. For instance, the Toyota Passo 990cc will be worth KSh 2.6 million, projecting 87% more than its past CRSP, and the Toyota Probox will rise by 91% which translates to slightly KSh 3.3 million.

Absence of Public Input: Dealers have criticized the KRA of single-handedly coming up with and publishing the new CRSP without consulting stakeholders or the general public, something they believe contravenes the constitutional provisions of openness and good administrative practice. This reverberates with an earlier court decision in 2019, which had termed a similar CRSP schedule illegal since it was not done with public participation.

Ignoring Depreciation: CIAK has accused the KRA of neglecting their proposed depreciation formula which would enable a gradual decrease of vehicle value depending on its age making it easier to pay taxes on it. The new formula has a maximum depreciation rate of 65% irrespective of age which dealers find inadequate.

Omissions to the List: The new set of tax policies published are said to exclude a good percentage of the commonly imported vehicle models and trim levels, leaving the importers at a loss, and subjecting them to misleading and excessive taxation by the custom officials.

Risk of loss to Business and Employment: The used car dealers fear that the sudden increase in the valuation of a vehicle and duties will cause a 70% decline in the inventory of the small and medium importers, with devastating second order effects including job losses in the clearing yards, garages and showrooms.

In its defence, the KRA says that the new CRSP list is the outcome of an intensive consultations with the stakeholders and that it is meant to capture the current market realities such as the exchange rates (100 KSh per USD in 2019 to 130 KSh per USD in 2025), higher import duty rates (25% to 35%) and revised excise duty rates (up to 35%). They argue that the revision is important to make taxation fair and improve revenue performance. The authority also notes that there are more than 5,200 unique models in the new list as compared to about 3,000 in the 2019 list.

The KRA has been given seven days to reply to the application by CIAK by Justice Jairus Ngaah who heard the application. This court battle has been met with increased anxiety by the importers and consumers of cars in Kenya that have raised concerns over increased cost of vehicles in Kenya. The result of this lawsuit will carry far-ranging consequences in the used car market, which may delay or prevent the enactment of the unpopular tax reforms of the KRA and determine the future cost of importing cars.