BUSINESS

Taxing used-car importers

E


By Ronald Musoke

n April, this year, Leonard Okema or-

dered for a Toyota Harrier model 2001
from one of the used car dealers in Japan.
Unlike many Ugandans who were on
June 11 taken by surprise by the Finance
minister Matia Kasaijas raising of the envi-
ronmental levy on used cars, Okema had
heard wind of it and acted fast. He wanted
to avoid the new higher tax.
After crunching numbers, he thought he
would pay about Shs10.3 million in taxes
(customs duty (25%), VAT (18%) and envi-
ronmental levy (20%)). This was in addition
to the $ 4000 (Shs 12m) of cost, insurance
and freight (CIF) for the car.
Unfortunately for him, the ship delivering
his dream car delayed to reach Mombasa,
pushing the arrival date to July 10. This
meant Okema will not dodge the envi-

because his car is 14 years old and will now

the 20% he had in mind.

Okema told The Independent on July 4 that
given the new changes, he is now going to
pay up to Shs 13.6m to the Uganda Revenue
Authority (URA).

Reconditioned Japanese
vehicles in Kampala awaiting
buyers. INDEPENDENT/JIMMY SIYA

Of course I feel terrible, but now I must


he said.
Okema is not alone.
Along the eastern route from Kampala
city is a stretch between Spear Motors,
Nakawa, and Kyambogo which is an
enclave of bonded warehouses for used

old reconditioned Japanese vehicles. Some,
like the popular Toyota Dyna trucks, were
manufactured as far back as the 1980s.

over any potential customers.But when The
Independent visited in early July to see what

having, the vibrancy was missing. Only a


they spoke of tough times.
Khan Ejaz Ali, the director, Owais Motors,
a company which deals in new and used
cars told The Independent that he has been
selling at least two cars every day or about
50 vehicles a month. But since July started
and the new taxes became operational, busi-

he sold mainly to customers with a budget

to pay the higher new prices. He recalled a

customer who wanted a 2003 Toyota Spacio.

Before the new taxes, it would have sold for
Shs21 million. With the new changes, Khan
said the car now goes for Shs25 million,
thanks to the 50% environmental levy.
When the environmental levy was intro-
duced in 2008, it was set at 20%. Since then,
the government has been raising taxes on
used vehicles in almost every budget. So the
dealers possibly expected a higher tax. But
they possibly did not expect to be set as high
as happened. In the 2015/16 Financial Year,
the environmental levy on used motor-vehi-
cles shot from 20% to 35% for motor vehicles
of 5-10 years old and to 50% for those above
10 years except goods vehicles. The gov-
ernment said it was a temporary action
against air pollution.
At the neighbouring Minhas Motors,


early July, he was not seeing any.

He is lean, tall, middle-aged, and of South
Asian origin. Furiously, he yanks his green
passport out of his trouser pocket. Look,
he says, showing the part where Ugandas

allow him work in Uganda for three more

years.

$10,000 (about 30 million) to renew his
work permit since his category is that of
investors who pay $3500 to work in Ugan-
da every year. They also pay between Shs

BUSINESS
5000-8000 depending on the size of the car
for each day it stays in the car bond as rent
and more money for fuel. Then there is the
ever appreciating dollar. With all these costs,

hike in taxes.
You cant tell a customer who has been
used to paying Shs15 million that this car
-
ing the bonnet of a 1998 navy blue Toyota
Noah model.
Who is going to buy it now? he asked
with a mixture of anger and frustration.

are being blamed for what experts say is an
increasing air pollution problem in Uganda.

Rising air pollution

Gerald Mukasa, a technician in the Motor

vehicle Section at Kyambogo Universitys
Mechanical and Production Department,
-
ous fumes like carbon monoxide, a colour-
less and odourless poisonous gas that is a
product of fuel that is not completely burnt.
He says the increasing number of vehicles
has resulted into more emissions which

Najib Lukooya, the environment and

sanitation specialist at Kampala Capital City
Authority (KCCA) agrees.
The vehicles emit a lot of gases and
remember our fuel is not of the best qual-
ity that there is. So you expect gases that
can harm the respiratory system and cause
cardiac and heart-related diseases, he says,
This means that once you have very many
old vehicles, then you have a cumulative

He says carbon monoxide is dangerous to

people, especially pregnant mothers, unborn
babies, children, and the elderly because
once it enters the blood stream, instead of
transporting oxygen around the body, the
blood will transport carbon monoxide lead-
ing to a shut down, gradually or in the short
term. That depends on the levels of concen-
tration. Signs of carbon monoxide poisoning
-
aches but higher levels of carbon monoxide
could cause brain damage and death.
Lukooya says there is already evidence
of that. For instance, as of 2010, the num-
ber of people reporting heart-related dis-
eases in Mulago National Referral Hospital
increased by 10%.
This cannot only be pointed to only
Kampala or vehicular emissions or air qual-
ity but with the increasing urbanization, it
points to something.
If you have increase in vehicles, indus-
tries and therefore emissions and then you
have increase in respiratory or heart-related

But the contribution of emissions by used

vehicles in this mix could be exaggerated
because Uganda still has very few vehicles
on the road and there are other polluters,

Uganda has about

24 vehicles

for every 1000 people,

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considering that Kenya
is also at 24 per 1000,
and Egypt is at 45
including industries.
A 2014 count by the Uganda Revenue
Authority registered slightly over 85,000
vehicles. Other estimates, claiming many
remain unregistered, say there could be
between 600,000 to 800,000 vehicles in the
country. That would mean Uganda has
about 24 vehicles for every 1000 people,

Kenya is also at 24 per 1000, and Egypt is

at 45. Even at that level, the environmental
impact of motor-vehicle pollution appears
exaggerated, especially by a government
which is not renowned for paying keen

be that the government is merely looking at
the environmental tax as just another rev-
enue stream.

What should environmental taxes do?

Donald Rukare, the Chief Executive

 
Research Centre (GPRC) says it seems to
be the case.When reading the 2015/16 bud-

geared towards increasing the tax to GDP
ratio by at least 0.5 percentage points of GDP

percent by 2018.
Rukare says although he supports the
environmental tax on old cars, as a way
of both preserving the environment and
ensuring that Ugandans are not exposed to
vehicles of questionable mechanical state
due to old age, he says it does not make
sense to slap huge taxes on old cars without

those driving old vehicles might have to
drive them for longer.
This objective is overruled by the pro-
hibitive high taxes on new or newer cars,
he told The Independent on July 4.

(2013 and above) due to the tax regime. In
order to encourage Ugandans to purchase
new/newer cars, the tax should not be too
-
ronment tax and taxes on newer vehicles is

the government was serious about the envi-

ronment, the money collected from this tax
would go directly to the National Environ-
mental Management Authority (NEMA). He

says as it is now, the money will be used on

non-environmental protection issues.
Environmental economists say as a gener-
al rule, revenue raised from regulatory taxes
should not be included in the governments
revenues, otherwise, the government may
come to depend on the revenue and end up,
perversely, wishing to continue the regu-
lated activity at a higher than optimal level.
Rather they say revenue from such taxes
should be used to deal with the problem
that led to the need for regulation in the

should make it easy for people to change
their undesired behaviours.
Godfrey Akena, the executive director of
the East African School of Taxation adds that
the government needs to apportion a certain

at the reduction of carbon monoxide.

For a start, Akena says, the environmental
levy could be used to encourage purchas-
ing new cars. The carbon monoxide issue
should not be taken lightly by Ugandans
because the number of cars has increased
over the last two decades.
However, Akena does not think it will

because cars manufactured between 1998
and 2000 are still cheap because as a policy
those countries do not want old cars on their
roads because they know what it means.
Going forward, Akena says because the

cars so long as there is no ceiling on the age

of cars that are supposed to enter the coun-
try, he wants the government to come out
and put an upper limit on the age of cars
that should enter the country.
Without this policy shift, it wont change
much, he says.

URAs wish

But Stephen Magera, the assistant com-

missioner trade at URAs Customs Depart-
ment insists the tax will actually meet its
objective. He says although the car dealers
are complaining now, he says business will
soon get back to normal.
Magera says the reason why some of
these companies were not doing any busi-
ness in early July is because when changes
in the environmental levy were announced
many people went and bought vehicles.

he says URA has the evidence.
Our thinking is that this is just a low
-
ness will pick soon and people will buy
these vehicles, he says.
Magera adds that there is no intention of
pushing used-car dealers out of business
and that URA will monitor how their busi-
nesses are faring after the nine months. For
the environmentalists,
Mageras wish is the real problem. For
now, Okema has to dig deeper into his pock-

June 10 - 16, 2015

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