High tax on car imports . . . Grey imports gobble $4,5 billion . . . Government to increase surtax by year end . . . Move meant to grow market for new vehicles

25 May, 2018 - 07:05 0 Views
High tax on car imports . . . Grey imports gobble $4,5 billion . . . Government to increase surtax by year end . . . Move meant to grow market for new vehicles A bigger stream of tax dollars is planned to cut back imports of second-hand cars.

eBusiness Weekly

Martin Kadzere
The cost of importing used vehicles is likely to increase as government is considering raising import levies on all pre-owned cars, Industry, Commerce and Enterprise Development Minister Mike Bimha has said.

The initiative, meant to curtail grey imports and create the market for new vehicles, will entail a gradual increase in customs duty and surtax to narrow the cost gap between new and used cars.

Between 2009 and 2016, Zimbabweans spent as much as $4,5 billion on second hand cars, an average of $566 million per year, according to the Zimbabwe National Statistical Office.

The charges levied on second hand passenger car imports by the Zimbabwe Revenue Authority are customs duty, 40 percent, surtax 35 percent, and value added tax 15 percent.

Surtax is only charged on passenger vehicles that are more than five years old at the time of importation.

“We are not going to ban the second hand cars but to put in place restriction measures to support the growth of the sector,” Minister Bimha told The Business Weekly.

Zimbabwe has a comparative advantage over its neighbours, except South Africa as it has two assembly plants owned by Quest Motors in Mutare and Willovale Motor Industry in Harare.

Established about 50 years ago, the industry has historically proved to be a strategic sector in terms of meeting motor vehicle demand in the country.

Minister Bimha said world over, countries with mature motor industries restricted the importation of second hand vehicles to support growth of their domestic industries.

Some of the restrictive measures include the development of standards for the country’s vehicle industry and pre-shipment inspection policy for second hand cars.

The pre-shipment inspection policy will prescribe minimum standards and vehicles that fail to confirm to the expected standards will not be allowed in the country.

Currently, Zimbabwe does not have fool proof pre-import inspection mechanisms.

Timing unrealistic

Economic analysts said while it was desirable to have a well-developed local domestic car assembling industry, the business fundamentals that support the initiative were “non-existent.”

With the depressed income levels in Zimbabwe, even directors in the government would not afford very low-cost vehicles. In addition, the private sector wages were equally depressed, implying therefore that whoever invests in new assembly lines will not be able to recoup their investment.

“The income levels in Zimbabwe are very low and will not sustain viable demand,” said Mr Brains Muchemwa, the chief executive of Oxlink Capital. “Vehicle hire purchase should generally not exceed 30 percent of buyers’ monthly incomes.”

Last year, Africa’s largest car manufacturer South Africa sold 558 756 new vehicles on the back of a vibrant middle class, while Zimbabwe imported 14 470 second hand cars, a reflection of depressed incomes

He said while the financial services sector should be the backbone of a vibrant motor industry, the domestic sector was “shallow” with respect to lease finance and this resulted in low take-up of new vehicles.

“It is a good policy but very elitist,” said Muchemwa.

Stepping up efforts to attract investment

The government recently launched Motor Industry and Development Policy-2018-2030, which seeks to attract foreign direct investment into the local automotive assembly and components manufacturing sector to 10 percent of the total foreign direct investment by 2030.

It also seeks to achieve full capacity use while boosting employment by 70 percent during the first year of the implementation.

Once the market for new vehicles has grown, it would create its own pool of second hand vehicles and eliminate the need to import.

“Successful implementation of this policy will help the sector to become a major driver of broad based economic growth and ensure the industry value chain is enhanced,” read part of the policy document.

While the rationale of the policy was noble, industry players believe there was need for mechanisms to ensure locals can afford new vehicles to create sustainable demand that would drive the growth of the domestic automotive industry.

The policy already proposes for the government to engage banks for customer funding and tax incentives to stimulate demand for locally produced vehicles and encourage procurement of vehicles by government departments and parastatals.

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