Rwanda's Used Car Importers Decry New Tax That Has Increased Sale Price

Rwanda's Used Car Importers Decry New Tax That Has Increased Sale Price;Rwanda Revenue Authority has started implementing a new tax methodology which is expected to increase the price of used cars.

However, this has sent shock waves among both used car importers and buyers, who are concerned about the price increase that will inevitably come with the new tax regime. The methodology revises the depreciation threshold upwards by 80 per cent to cars of 10 years and older.


The new methodology is based on the computation of the value the vehicle is given at the time it was new and when it is being sold. If the period between its year of manufacture and the time it is being sold locally is 10 years and above, an 80 per cent depreciation threshold applies, the remaining 20 per cent being the vehicle's current value.

This has increased the cost of used cars beyond the usual 50 per cent taxes levied on them, something importers say will hurt their businesses since most of the clients who come to buy them cannot afford brand new cars of the desired makes and models.

"Just as we were celebrating improved roads and reduced fuel prices, that someone will finally buy a car, this law comes," said Fulgence Munvaneza, a motor vehicle enthusiast. "The threshold is too high, it's unfair.


"Most of us want simple, cheaper used cars...that's all we can afford."

The new directive seeks to harmonise import duties on old cars among the East African countries.


But Mr Munvaneza said: "The fact that something has been agreed regionally doesn't make it fair or right, it's not for me."

Traders have said the sudden introduction of the taxation methodology without consulting them has exposed them to unexpected losses since they had ordered for many vehicles based on the old tax system which will be taxed according to the new tax rates.

"The new methodology is unfair to us," a used car dealer who preferred anonymity lamented. "But that's another issue.

"That aside, they did not engage us in advance; we wouldn't have ordered the cars using the old calculations.

"Now we are stuck."

In an interview, Raphael Tugirumuremyi, the commissioner for Customs at RRA, told Rwanda Today that it was not the taxman's intention to harm the importers and that the authority has made arrangements to help the affected traders.

"We don't want these changes to cause any harm to the importers," said Mr Tugirumuremyi. "Anyone who is in trouble can see the commissioner for guidance.

"We shall treat them on a case by case basis, depending on the time they imported their vehicles. We have agreed that, as long as the importation was done before the enactment of the law, every case will be given due consideration."

Political decision

Regarding the increase in used car prices, he said it is not as high as it is alleged.

"The increase is slight," said Mr Tugirumuremyi. "They talk only about the increase in taxes for old cars; why don't they talk about the decrease in taxes for the new cars, which the law has brought?"

For purposes of illustration, a 1996 Toyota Carina, for instance, if when new had a value of 20,000 euros, its value now is 20 per cent of that, which is 4,000 euros.

In the current methodology, the usual used car tax regime -- of 25 per cent import duty, 18 per cent VAT, five per cent to 15 per cent excise duty, depending on the size of the engine -- is levied against the 4,000 euros, which is the 20 per cent of the value of the car at manufacture.

When asked to talk about the rationale for the changes, however, Mr Tugirumuremyi said this was largely a political decision that was reached at a higher level.

"This decision is more political than it is practical," he said. "We are the Customs; we just implement the decisions.

"My task is to collect the money. Some of the questions can be answered by policy makers."

Harmonisation

Ministers from the East African states made the decision to have the harmonised depreciation rates starting July 1 last year but the decision was delayed and was effected from September.

The depreciation rating for Kenya provides up to a maximum of 70 per cent for eight years from the date of the first registration of the used motor vehicle. In Tanzania, the rating provides up to 80 per cent with no limit on the number of years.

Rwanda initially used the previously accepted Customs value and Internet sources to determine Customs values for used motor vehicles.

Uganda previously used a reference value guideline derived from the average market prices of used motor vehicles from Internet sources, adjusted with freight and insurance costs to determine the Customs value.

The new law seems to be aimed at curtailing importation of used cars into the East African frontier in a bid to avoid dumping. It also aims at controlling carbon emissions from old cars which go on to have diverse effects on the environment, particularly damaging the Ozone layer.

Used cars manufactured from the year 2000 and later will be hit with a 80 per cent depreciation rate. Depreciation for those manufactured since 2013 will be charged at 40 per cent while those from 2015 and newer will be liable to only 20 per cent depreciation rate.