Potential car buyers in Rwanda are increasingly hesitant to dip into their pockets to acquire cars imported into the country due to high taxes.
This behaviour among potential clients may have a link with the drop in second-hand car imports.
According to Rwanda Revenue Authority the number of cars imported into the country have dropped to a monthly rate of 20% from 697 cars to 562 cars.
This follows the country’s decision to implement the East African Community (EAC) Depreciation schedule through a Free on Board depreciation rate ranging between 20% for 2-year old cars to 75% for 9-year old cars.
For a 10-year old car or more, the depreciation increased to 80%. Under the new conditions, the price of most preferred second – hand car brands including; Toyota Corolla, Toyota RAV4 and Toyota Carina E have almost doubled.
New vehicles with engine capacity of less than 1500cc pay 5%, between 1500cc and 2500cc pay 10% and capacity of above 2500cc pay 15%.
Mathematically, if you multiply the price of a new car by depreciation rate, the difference between the price of the new car and answer obtained from the calculation is the real price that will be taxed by Rwanda Revenue Authority.
For example the market price for a Carina E 1997 model was $20,191. The same car has depreciated to $4,831 (Rwf4, 021,679.47) including cost of shipment from Dar-es-Salam.
This is the price that is taxed 80% (Rwf3.2 million, costing a total of Rwf7.6 million.)
Car dealers who spoke to KT Press said they have felt the diminishing turn up of clients.
Lilliane Umugwaneza, a car broker with a Kigali-based brokerage company told KT Press her clientele has gone down by 60% – courtesy of the new tax policy.
“Every client interested in buying a used car first consults about the tax he or she will pay for the car. Some get shocked and change decisions,” she said.
Gilbert Mugabo, another car dealer told KT Press that the clients have declined.
“Clients come, inspect as usual, but when you tell them the price they walk away. I used to make at least 30 sales a day, I have made none today. The week is bad.”
Mugabo told KT Press that he predicts a sharp decline in importation as a result.
Despite the heavy tax burden slapped on used cars, the demand is still high.
On average, a Rwandan earns $800 per year. This means that owning a car worth $20,000 remains an expensive venture. Used cars will continue to be the preferred choice, regardless.
Rwanda Revenue Authority says government’s decision to implement that policy seeks to discourage importation of used cars and help cut on carbon emissions.
This could be the best way EAC has chosen to start its automobile industry and to phase out imports from Europe and Asia.
As a response to EAC’s new plan to start its own automobile industry, Rwanda and Volkswagen (VW) signed a Memorandum of Understanding for a new integrated mobility concept in Kigali.
The project, under its initial €1 million investment, includes an assembling plant, service stations, and training local mechanics which will not only see Rwanda become a center of excellence but expansion point for Volkswagen vehicles to the rest of Africa.
Additional reporting; Jean d’Amour Ahishakiye