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HomeWorld NewsTax benefits for vehicle assemblers welcome

Tax benefits for vehicle assemblers welcome


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Tax benefits for vehicle assemblers welcome


Motor vehicle assembling at the Associated Vehicle Assemblers plant in Mombasa. FILE PHOTO | NMG

The proposal to expand tax benefits for vehicle assemblers is a step in the right direction as it will raise the appeal of local production and the gains that come with it.

Other African countries that have larger vehicle manufacturing and assembly industries like South Africa have also used incentives to attract local and foreign investment in the sector.

Global automakers and dealers have many choices when it comes to where they can set up operations and incentivising them to make value-addition investments in Kenya is positive for job creation, skills and technology transfer.

The Finance Bill 2023 has provisions to halve the corporate tax rate from the standard 30 percent to 15 percent for companies starting new operations of putting together completely knocked-down parts at a local plant.

The lower tax rate will last for five years. Those already in the business –Isuzu East Africa, Associated Vehicle Assemblers and Kenya Vehicle Manufacturers — could also see their corporate tax rate halved to 15 percent if they achieve a local content of 50 percent of the ex-factory price value.

This means they will have to expand the number of parts they source from local suppliers to hit the set threshold, a move that will require going beyond common items like tyres.

The parts are to be designed and manufactured in Kenya by an original equipment manufacturer operating in the country.

The new incentives have been well designed to ensure that those seeking to claim the benefits add more value than simply shipping in parts and assembling them.

In South Africa, the government offers non-taxable cash grants of between five percent and 25 percent to the automotive players, with the benefits tied to jobs and production volumes among other metrics.

The incentives proposed in the Finance Bill, if adopted, will add to the assemblers’ exemption from import duty (25 percent) and excise tax (starting from 20 percent).

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