Kenya’s expenditure on imported motor vehicles has seen a significant reduction, totaling KES 21.8 billion over the ten months leading to October 2023. This decline is primarily attributed to increased taxation in the automotive sector, a continuous depreciation of the Kenyan Shilling against major currencies, and shortages of second-hand vehicles in international markets.
According to data collected by the Central Bank of Kenya, based on information tracked by the Kenya Revenue Authority, the value of vehicle imports for the ten months through October decreased to KES 102.0 billion, marking a 17.6% drop from the KES 123.8 billion recorded during the same period last year. This decline is also linked to rising borrowing costs, as the Central Bank of Kenya took measures to counter demand-driven price pressures. The Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) from 10.5% in June 2023 to 12.5% in December.
The Kenya Auto Bazaar Association, representing second-hand car dealers, expressed concerns about the impact of high shipping costs on orders. Individuals are adjusting their preferences due to higher prices, with some opting for more affordable alternatives. This shift in consumer behavior has led to a decrease in the number of imported vehicles, affecting a sector that contributes significantly to government revenue through taxes.
In response to these challenges, the Kenya Revenue Authority increased the duty on car imports from 25.0% to 35.0% in July 2023, as approved by the East African Community Council of Ministers. This higher duty rate, surpassing the common external tariff for the East African Community bloc, combined with additional excise duty and value-added tax, has contributed to the overall increased cost of importing vehicles.
The decline in vehicle imports is mirrored by a 14.1% decrease in orders for new units from local assemblers and dealers, including major players like Isuzu and CFAO Motors Kenya, during the period under review. Treasury Secretary Njuguna Ndung’u has expressed concern about the impact of reduced vehicle imports on targeted revenues, citing it as a contributing factor to a shortfall in excise duty.
Furthermore, this trend is part of a broader decline in the import value of goods, including petroleum products, posing challenges for both the automotive industry and the government’s revenue collection efforts. Notably, fuel consumption in the third quarter of 2023 dropped to a five-year low, mainly due to the increase in fuel VAT to 16.0% from 8.0% in July 2023.
Local pump prices crossed the KES 200.0 mark for the first time in history. Kerosene recorded the highest dip in the period under review, with consumption declining by 46.8%, followed by diesel and petrol at 4.3% and 0.4%, respectively.
Despite a notable drop in global fuel prices, fuel prices in the country remain elevated due to doubled VAT on fuel and a depreciating shilling.
