The aftermath of the new motor vehicle age limit directive

BY ANTONY MUTUNGA

The motor vehicle market in Africa is one of the fastest growing industries. The trade in new and used cars, motorcycles, buses, and trucks is now a multi-billion-dollar business on the continent. In fact, according to the UN Environment Africa Used Vehicle report of 2018, automotive imports were valued at $48 billion (Sh4.8 trillion) in 2014.

Even though both new and used cars are imported, used cars are the most popular as they are affordable to most of the population. In Kenya, more than 96% of imported vehicles are normally second-hand cars despite their obvious risk to the environment.

In order to address this issue, the government, through a proposal by the East African Community, decided to change the age limit of cars that can be imported into the country from the current eight years to three years by 2020. This will be done in stages, first to five years in 2019, then to three years after a year.

The move would indeed see the number of second-hand cars flooding the market reduce while also reduce air pollution in the country. Apart from this, the move would also help the region to grow its local manufacturing to meet the growing demand. Only 14,353 new cars were sold last year, according to the Kenya Vehicle Manufacturers Association

According to Trade and industry CS, Peter Munya, the new policy will be implemented in July and it would apply for vehicles with an engine capacity of above 1,500 cubic centimeters. When the policy is implemented, importers will not be allowed to import cars that are manufactured before 2014.

Even though the move will have its positive impacts in terms of health and the environment, many especially importers, have opposed the new policy saying that it would benefit a few while hurting the majority.

According to John Kipchumba, Kenya Auto Bazaar Association (KABA) chairman, the ministry only involved a handful of people from the motor vehicle industry to come up with a policy with direct consequences on their existence.

“Neither the Ministry nor manufacturers seem to get the market dynamics. What manufacturers are trying to do is similar to having your cake and eating it,” he said.

Importers argue that once the policy is implemented, the price of imported vehicles will almost double due to the fact that the prices of used cars will go up according to the year it was manufactured meaning a car manufactured in 2015 will be cheaper than a car manufactured in 2012. Importers will also part with 2.25% of the cost of the car as import declaration, insurance, freight value paid on the car as well as a customs fee which is applied depending on the value of the vehicle. With all these costs being transferred to the customer, it will be near impossible for most people to afford second-hand cars post in July 2019.

Additionally, importers also argue that the policy will also affect the government as once it is implemented, the number of imports is expected to decrease. Imported vehicles attract an import duty of 25%, excise duty of 30% and value-added tax of 16%. The government will not be able to collect the revenue it currently does from importation.

According to Peter Otieno, chair of the Car Importers Association of Kenya (CIAK), the importation of motor vehicles brings in Sh13.5 billion in terms of revenue for the government annually. With the government already having a budget deficit, this will only cause the deficit to widen and the growth of the economy to slow down.

“I don’t know where they will get the trillions they put in their budgets if they interfere because this is one of the fastest growing industries in this country and the government gets a lot of money from it,” said Mr. Otieno.

On the other hand, importers also argue that the policy will not only affect motor vehicles imported after July but it will also see a hike in second-hand vehicles already being sold in the country. According to James Gichana, a motor vehicle importer, the prices of vehicles in the country is expected to increase as people try to avoid purchasing cars imported after the policy is implemented.

“With more people going for second-hand cars already in the country, sellers will increase their prices as demand will be high,” said Mr. Gichana.

Apart from importers, the matatu industry has also come out opposing the policy as they argue that it will make cars more expensive, which will mean passing along the burden to the consumers. Simon Kimutai, Matatu Owners Association (MOA) chairman says that the policy will cause the price of matatus and buses to increase thus leading them to increase the bus fares. This will cause the life of citizens to become more expensive and it will as well affect many businesses in the country as most of them use motor vehicles to make bulk deliveries and transport their cargo.

Indeed, the government is in the right step in ensuring that the country reduces its carbon emissions. Not only is the government ensuring that its citizens are healthy but it is also ensuring the environment is clean as well. However, the policy requires more consideration and participation from the players in the sector. For example, the government can reduce the duties and taxes they charge on imports to create a fair market for importers to compete against manufacturers. Only in doing so will it ensure that the consumers are not the ones left with the burden of the new policy.

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