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Tax in Car Industry

When Kenya flicked the switch on its economy from ”closed” to ”open,” policy on the motor vehicle supply had one aim: Affordability.

To satisfy both political appetite and physical need, hundreds of thousands more vehicles had to put on Kenya’s roads by a market with limited purchasing power to enable the newly liberalized economy to blossom - in popular favor, in personal mobility, and in real business growth.

Accordingly, a combination of policy legislation and loopholes of practice enabled used vehicles to be imported under highly advantageous (effectively subsides) conditions. The tilt of the playing field was so steep that used imports went from zero to 80 per cent of the total vehicle replenishment market in a single decade.

Whether right or wrong, optimal or short-sighted, the policy worked. Kenya’s vehicle population has quadrupled since then. So, too, has the purchasing power of the market, to the extent that it can now acquire more vehicles than the infrastructure can cope with.

The policy is now defeating its own objects, and is grid locking both personal and business mobility and incurring huge operational penalties.

Time the policies changed

The population has changed. The position has changed. The priorities have changed. Perhaps it is time the policies changed.

Market purchasing power has increased sufficiently that the over-riding issue in the motor vehicle supply is no longer absolute affordability to solve an acute shortage.

It is relative affordability to balance quantity and quality, to generate revenues to develop infrastructure, and to bring long-term consequences into the equation.

The surest way to assess the impact of policy-driven taxes on the market choices is to remove them. If motor vehicles were tax free, what would happen to the price of the various options? Which would come down most and become more attractive to buyers; which would become relatively less advantageous? How would market forces translate that into consumer choices?

Of course, revenues would still have to be generated. There are lots of ways to do that, in positive carrot-and-stick ways, through vehicle use. Also, the importance of the ”tax free” models is not so much that tax on all vehicles is zero, but that tax on all vehicles is the same.

Therefore, a similar neutralization of policy  interference can be achieved while still charging duty - at a fixed and flat rate per category of vehicle, irrespective of age and landing price. One class of vehicles. One fixed fee for any vehicle in that class. No exceptions. No discretion. What could be simpler and surer than that?

More complicated calculations greatly increase the cost and reduce the certainty of collection. Complication is the creator of loopholes, the fuel of fraud, the camouflage of calumny. It furnishes the playgrounds for cheats.

So why not keep it simple? Keep it honest. Keep it fair. And let technical merit, market and personal choices do their job on a level field.

Tax in Car Industry Reviewed by on . When Kenya flicked the switch on its economy from ''closed'' to ''open,'' policy on the motor vehicle supply had one aim: Affordability. To satisfy both politic When Kenya flicked the switch on its economy from ''closed'' to ''open,'' policy on the motor vehicle supply had one aim: Affordability. To satisfy both politic Rating:
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