Motorcycle prices set to increase after tax rule change

 

Motorcycle taxi operators wait for customers at Luanda market, Vihiga County. Photo/FILE  Nation Media Group

By Neville Otuki

IN SUMMARY
Motorcycle assemblers will now pay 25 per cent tax to import spare parts, which is the equivalent of duty paid for finished motorcycles under the customs union protocol.

The new development will discourage new investors from setting up in Kenya due to the high cost of importing CKDs.

It is also likely to keep motorbikes off the reach of many Kenyans.
Motorcycle assemblers have been slapped with a new tax that is feared will make locally assembled bikes more expensive and slow down the industrialisation process.

The assemblers until last month enjoyed a 15 per cent tax waiver on imported motorbike parts, commonly known as completely knocked down kits (CKD), as part of the government’s policy to encourage local assembling of bikes to save foreign exchange and create jobs.

This means motor firms will now be forced to pay the full 25 per cent tax to import spare parts, which is the equivalent of duty paid for finished motorcycles under the customs union protocol.

The high import rates are likely to keep motorbikes off the reach of many Kenyans due to high prices and diminish hopes of significant job creation by investors setting up assembly plants in the country.

The policy statement was announced in the East African Community Gazette on June 30 and came into force on July 1.

The regulation, however, imposes a condition that manufacturers will continue enjoying the 15 per cent waiver only if they source for motorbike parts from any of the EAC member states and turn their back on imports from outside the bloc.

The notice identifies the various CKD parts to be obtained in the region as main frame, suspension, seat frame, mudguard, wheel rim, break gear and exhaust pipe.

The new development, which also affects other Kenyan manufacturers under the remission scheme who are paying full duty to enter other East African Community (EAC) states, will discourage new investors from setting up in Kenya due to the high cost of importing CKDs.

This comes even as two automakers — Honda and TVS —have set up motorcycle assembly plants in the country having been attracted to the local market partly by the duty remission scheme.

The two firms say the government should reverse the decision by the EAC Secretariat considering there is no manufacturing plant for CKD in East Africa with only the cottage industry producing some parts.

Even then, these firms said they are not comfortable buying CKD (spare parts) locally citing low quality.

“We shall continue importing CKD due to quality issues but at a higher price following the regulation,” Isaac Kalua, the chairperson at Honda Motorcycle Kenya Ltd, said Friday.

Honda says the regulation may hurt their efforts to manufacture affordable motorbikes in the country even as they target low-end customers with the construction of an assembly plant in Nairobi to be opened in October.

(Read: Honda to begin local assembly of motorcycles)

High operation cost could also discourage the firm from hiring over and above its target number of local employees — 60 — in the first year of operation.
Honda plans to assemble 100 units of 120cc daily. The units are popular with boda boda operators in the country.