EAC member states reinstate tax waiver on motorcycle parts

Money Markets

A worker at Blueridge Capital assembles motorcycles at the firm’s Mombasa plant. file 

By ALLAN ODHIAMBO

In Summary

• The popularity of the motorbikes has drawn the interest of investors seeking self-employment, with a large number preferring cheaper Asian models.

Motorcycle assemblers have won a reprieve after the regional council of ministers reinstated a special tax waiver on imported motorbike parts, raising hope for growth in the sector. The assemblers were until June 31 faced with a 15 per cent tax introduced last year on imported motorbike parts, commonly known as completely knocked down kits (CKD).

 

The unpopular tax move meant that motor firms were 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.

Only manufacturers who sourced for motorbike parts from any of the EAC member states were allowed to enjoy the 15 per cent tax waiver from July 1, 2013.

But in a measure expected to boost growth in the motorbike manufacturing business, the EAC Council of ministers has reinstated the tax waiver of CKD imports for another year to June 2015.

“In exercise of the powers conferred upon the Council of Ministers by Section 140 of the East African Community Customs Management Act 2004, the Council of Ministers has stayed the application of the conditions contained in Legal Notice No. EAC/39/2013 of June 30, 2013 on duty remission for motorcycle assembly for one year,” EAC Council of Ministers chairperson Phyllis Kandie said in a notice.

The regulation applies in all the EAC partner states with each having varied duty remission rates. The duty remissions scheme, introduced eight years ago, allowed export-oriented manufacturers of commodities in the EAC bloc to pay reduced rates for import inputs instead of paying in full the 25 per cent common external tariff rates in line with the customs union protocol.

This is on top of the requirement that manufacturers of the goods produced using inputs shipped in under the duty remissions scheme are supposed to sell up to 80 per cent of their products outside the EAC.

It means only 20 per cent of the goods manufactured using inputs that have benefited from the duty exemptions can be sold in the entire region.

Motorcycles are a popular mode of transport in urban areas in the region for their ability to beat lengthy delays caused by incessant traffic jams. They are also used heavily in rural areas where they offer more flexibility and wider reach as most areas suffer from poor road networks.

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The popularity of the motorbikes has drawn the interest of investors seeking self-employment, with a large number preferring cheaper Asian models.

Statistics from the Kenya National Bureau of Statistics shows that 125,058 motorcycles were sold last year compared to 93,970 units the previous year. This put the auto industry on the path to match the peak 140,215 units it sold in 2011.