Nearly 10,000 vehicle and motorcycle assembly jobs are at risk of disappearing in the wake of the recently introduced excise taxes on locally assembled vehicles, industry officials said.
The assemblers said they had already retrenched 415 workers in the first five months of the year in response to a slowdown in business associated with the levies.
The Kenya Association of Manufacturers (KAM) said last year’s introduction of a flat excise tax of Sh150,000 and its recent enhancement to 20 per cent of a vehicle’s value have effectively wiped out the tariff and tax incentives that led to the establishment of assembly plants in the 1970s.
The series of excise tax measures followed the imposition of a value added tax (VAT) on the industry in 2013, which KAM says marked the first of the disincentives that have since deepened in severity.
A flat rate of excise duty of Sh10,000 per unit has also been imposed on motorcycles, pushing up retail prices by wide margins.
KAM warns in a memorandum to the government on behalf of Kenya Vehicle Assemblers (KVM), General Motors East Africa (GMEA) and Associated vehicle Assemblers (AVA) that the plants will shut down if the taxes are not terminated.
“Imposition of this duty on locally assembled vehicles will disincentivise the motor vehicle industry, leading to the ultimate collapse of the industry with significant ripple effects on the forward and backward linkages, whereby the local content suppliers and dealers may have to close shop,” KAM wrote in the memo seen by the Business Daily.
The manufacturers want Treasury secretary Henry Rotich to stop the application of the 20 per cent excise tax immediately, adding that the tax laws should be amended to explicitly exempt vehicle parts headed to assembly plants from taxation. The lobby says the proposed measure is necessitated by the fact that 10,000 jobs across assembly plants, dealerships and local content suppliers are at stake.
KAM says the effect of the taxes is already being felt in the industry, including a 26 per cent drop in motor vehicle unit sales to 5,938 in the first five months of the year. A similar margin of drop in sales value amounting to Sh2.5 billion has also been recorded in the period.
Motor vehicle assemblers have also reported an average production decline of 30 per cent in the review period, leading to redundancies of 115 employees and capacity utilisation of just 20 per cent.
Motorcycle assemblers on the other hand have cut 300 jobs, reducing their staff count to 900 after production fell 47 per cent to 32,000 units.
This saw their capacity utilisation drop to 55 per cent from the previous year’s 80 per cent amid a 46 per cent decline in motorcycle sales to 30,634 units.
Besides the job losses and reduced earnings for assemblers and dealers, KAM says an industry shutdown will deny Kenya technology transfer, slow down the march toward industrialisation and reduce revenues to government via PAYE and corporate taxes.
Credit: Business Daily