Northern Corridor truckers mull shift to Dar over tax

Trucks queue as they get to the Mariakani Weighbridge. Kenya’s new tax measures threaten the operators on the Northern Corridor with extra costs, with some considering moving to Tanzania. FILE | WACHIRA MWANGI | NMG

By ANTHONY KITIMO

More by this Author

The cost of transporting cargo on the Northern Corridor is set to increase in the next financial year if Kenya’s proposed motor vehicle tax of 2.5 percent of the vehicle’s

value is implemented.

Vehicle owners will be required to pay tax on each vehicle at the time of issuance of insurance cover with a minimum of $39 (Ksh5,000) without a cap, based on make, model, engine capacity and year of manufacture.

Already, key Mombasa port users have raised concerns over the tax, and are mulling seeking cheaper services in the neighbouring countries.“We gave our recommendations on the Finance Bill but we were shocked to see the motor vehicle tax not scrapped. I will not pay the tax, so I am planning to relocate to Tanzania,” said Hussein Abdi, a truck owner.

Transporters, shippers and clearing and forwarding agents also said they will seek shipping services in Tanzania, which is considered more business-friendly.

The port users argue that the Dar es Salaam port charges less than two percent import declaration levy and traders are exempted from transport charges, which have been introduced in Kenya.

The Shippers Council of Eastern Africa (SCEA) and Kenya Transporters Association (KTA) said the increase of Import Declaration Fees (IDF) and proposed 2.5 percent circulation tax on vehicle value would lead to reduced competitiveness of Kenyan exports.

Transporters using the Northern Corridor have been bearing high costs.

According to a 2023 survey carried out by SCEA, transport costs in the region are estimated at $1.8 per kilometre per container, against international best practices of $1 per km per container.

The report cited Kampala-Mombasa as the most expensive route to transport cargo at $2.5 per tonne followed by Mombasa-Kampala at $2.17, Dar es Salaam-Kampala $1.17 and Bujumbura-Dar es Salaam at $1.02 per tonne.

The SCEA indicated the top three least expensive international routes as Dar es Salaam-Bujumbura at $0.02 per tonne, Dar es Salaam-Kigali at $ 0.17 and Nairobi-Dodoma at $0.1 per tonne.

The Northern Corridor covers 12,707km (1,323.6km in Kenya; 2,072km in Uganda; 1,039.4 km in Rwanda; 567km in Burundi; 4,162km in DRC and 3,543km in South Sudan).

The shippers appreciate the government’s move to introduce an exemption from IDF and Railway Development Levies (RDL) on inputs, raw materials and machinery used in the manufacture of mosquito repellents.

They proposed that 70 percent of the IDF money and whose use has not been outlined be allocated for trade facilitation government agencies including the KenTrade, Kenya Bureau of Standard (Kebs) Port Health, to reduce on the imposition of fees and charges for the imported goods that are not commensurate to the services rendered to reduce costs of doing business and enhance competitiveness.

In the Bill, the government has planned to use 10 percent of the total IDF collection to be used as Kenya’s contribution to the African Union and other international organisations and 20 percent of the amount to be allocated to revenue enforcement initiatives or programmes.

KTA chairman Newton Wang’oo said they strongly opposed the motor vehicle tax arguing that it would significantly increase operational costs, potentially forcing many transporters out of business.

Read: EAC finance ministers present 2024/25 national budgets

“Transporters already face a substantial tax burden on vehicles during purchase -- including import duty, excise duty, VAT and levies for import declaration and railway development. They also pay numerous taxes included in the fuel prices hence additionally the 30 percent corporate tax on profits generated from these vehicles,” Mr Wang’oo said.

Transporters said the tax increase would significantly raise the cost of doing business for Kenyan transporters. This burden would particularly damage heavy commercial vehicle businesses, which are critical for regional trade.

“The tax would lead to reduced competitiveness of Kenyan exports, potentially causing trade routes to shift to neighbouring countries with lower operating costs, job loss and will discourage investment in the transport sector, hindering growth and modernisation of Kenya’s transport infrastructure,” said the chairman.

Transporters said if the proposals are passed without amendments, transporters will opt for third-party insurance, which will expose their businesses to high risk as the financial burden of replacing or repairing damaged vehicles or covering out-of-pocket expenses would be too much for many in the industry.

“The requirement to remit tax within five days of issuing insurance coverage could create cash flow problems for insurance companies, as they may have not yet collected the full premium amount and they would suffer most since prescribed penalties for non-compliance are very punitive,” Mr Wang’oo added.

Recently, Kenyan Transport Cabinet Secretary Kipchumba Murkomen defended the proposed levies saying they would assist in developing infrastructure.

“We shall use some levies such as the Railway Development Levy to extend the standard gauge railway to Malaba and other parts of the country,” Mr Murkomen said.