Sh28 Billion Tax Waivers for Local Car Assemblers in Kenya

Local Car Assemblers in Kenya have been revealed as one of the major beneficiaries of Kenya’s Treasury largesse. This largesse has come in form of tax waivers to the industry’s value chain over the years.

In specifics, the government department revealed that it had disbursed in a space of 4 years, tax waivers to the tune of Sh28 billion which has helped the industry’s increased production capacity.

Tax Waivers for Local Car Assemblers in Kenya: Trajectory

It is important to state that since 2017 in Kenya, the production turnout of local car assemblers has increased, creating jobs across the industry’s value chain.

On the flip side, this government policy to enhance the local industry has cost the government an arm and a leg, preventing it from increasing its tax collection.

One major evidence of how these tax waivers have made the industry thrive is the jump recorded in excise duty expenditure for locally assembled motor vehicles by 65 percent from five years ago to Sh7.6 billion in 2021.

The above is reflecting a favourable tax regime for manufacturers as it is the government that had to forgo the massive exercise duty.

Still on the perks, the share of locally assembled vehicles rose to a record high of 78 percent by the end of 2022 due to the government’s policy on promoting the consumption of locally assembled care. This is according to data from Kenya Motor Vehicle Industry Association.

Production Boom

The local automotive industry in Kenya had received a boom since the implementation of the tax waiver seeing the number of assembled cars increased.

In 2022 alone, the number of locally assembled cars was put at 10,383 out of a total of 13,352 new cars. This shows clearly that the government’s intervention is making local assembling of cars lucrative for the industry players.

Recall that the share of locally assembled motor vehicles has been rising, from a low of 42.6 percent in 2018, or 5,555 car units.

It is key to note that this has made big players like Peugeot and Volkswagen find their way back to establish assembling plants in the country.

Companies strong in local production have linked their rising fortunes to support from the government that has enacted favourable policies besides being one of the biggest buyers of new vehicles.

A Snowballing Effect

The spate of tax waivers in Kenya with the bulk share to the automotive industry has brought about a government instigating a tax refund that went up to Sh316 billion in 2021 alone from Sh267 billion in 2020.

According to government officials, the refund is coming from the failure of the government to recover the commensurate value of what was invested as a waiver in the tax administration.

The words of National Treasury Cabinet Secretary, Njuguna Ndung’u in a recent interview also pictured this plight.

In his words

The chunk of the tax incentives have not only failed to have the envisaged impact, but they have also even made the tax system inefficient and difficult to administer.

It is, therefore, time to re-look at and streamline these incentives, especially now when the country needs every cent to address the myriad of challenges it faces.

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