Why you pay more taxes on ‘newer’ used cars

Vehicle taxation is a bit tricky for an average person to understand. According to URA’s current validation guide, an Opel Zafira made in 2002 with 2200cc is charged $3,356 (Shs8.2m) and a Subaru Traviq (2002) with 2200cc is charged $3,051(Shs9m). These are the same vehicles with different badges. Yet when it comes to Toyota Harriers of 3000c and the Lexus R300, they are all charged the same taxes yet they belong to different segments in ordinary and luxury respectively.

Environmental levy affects all vehicles manufactured earlier than 2008, the difference is made by the value of cost, insurance and freight (CIF), which is determined by trading prices internationally. That said, why should older vehicles be levied less than “newer” used ones? Albert Tumwine sought to ascertain the reasons.

When buying a used car, at least most vehicle owners and dealers know that buying an old car attracts more tax than purchasing a brand new one. This is explained by the fact that old vehicles, according to motor vehicle laws, emit harmful smoke that pollute the environment and as a result, buyers of such vehicles are supposed to incur a tax, an environmental levy that amounts to 20 per cent of the total price of the vehicle.
This tax, according to Uganda Revenue Authority (URA), is meant to discourage old vehicles from being imported into the country with the assumption of protecting the environment.
But as some of you might be wondering, some newer vehicles may incur total taxes that may be way higher than those of much older cars.
An official at URA customs department admits this fact and says it happens when the newer vehicle’s overall value is high. “We have a value guide that we use to levy uniform taxes regardless of the year in which a car was manufactured,” the official who preferred anonymity says.
He says the value of the vehicle determines the overall tax. “The overall tax is not determined by the environmental levy alone that is only 20 per cent. But there are other taxes which apply uniformly regardless of the nature (new or old) like infrastructure, value added, withholding and registration fees among others.
According to a source from URA, who chose to remain anonymous because he is not the spokesperson, the environmental levy tax does not affect cars manufactured after 2007.
“That tax policy only affects vehicles manufactured in 2006 and beyond,” he says.

Other taxes that affect the overall price
While the environmental levy on vehicles can be avoided by buying brand new cars or those that are six years or less, other taxes apply uniformly to all cars regardless of year of manufacture.
According to David Mugyenyi, the acting corporate and public affairs manager at URA, vehicles that are eight years old and above, attract environmental levy.
“This tax is 20 per cent of the total cost involved in purchasing the vehicle,” Mugyenyi says. For example if the vehicle is Shs30m, then the environmental levy is 20 per cent of Shs30m which is about Shs6m, but one can avoid the tax by buying newer cars,” he explains.
Mugyenyi adds that: “Such vehicles attract that tax because they emit fumes that pollute the environment.
Meanwhile, the amount of taxes paid on different cars differ according to the cost, insurance and freight (CIF).
“CIF is the total amount of money used in purchasing the vehicle. “For example, someone importing a vehicle valued at Shs20m meets higher taxes than one buying a car at Shs10m,” Mr Mugyenyi says.
“The reason is simple, the higher the CIF, the higher the total taxes incurred by the buyer. This is because the taxation criterion by URA is based on the value of the vehicle which is in the CIF,” Mugyenyi says.
www.smartransgroup.com, a cargo forwarding website defines CIF as a trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier.
The CIF is always calculated in the standard US dollars as per customs motor vehicle indicative value guide which is then translated into Uganda shillings. The value of the car is then subjected to different taxes.
There are various CIF guides for various car types can be accessed on the URA website (www.ura.go.ug).
There is a guide on the URA website under the A-Z tax topics, indicative value guide which is routinely updated. The review and update, according to URA, is informed by trading prices of vehicles internationally. URA says the value guide is routinely updated to ensure newer vehicles’ values are determined.
“We have a pool of knowledge in customs, even if you are importing the newest vehicle which isn’t on the guide yet, we are able to find out from the country in which the vehicle is being imported,” a source from URA says.

Tax calculator
URA has an electronic tax calculator where the buyer feeds in the year in which a vehicle was manufactured, the cost of the vehicle (CIF), the year of importation and then total taxes appear. These taxes include value added tax; it is a tax only on the value added to a product, import duty; a tax on items purchased abroad, withholding tax; a government requirement for the payer of an item to the government, and registration fees which is a sum of money required to enroll on an official register. “Most of these taxes are pre-determined and the vehicle cannot go on the road without paying them. The vehicle taxes are outlined by law just like those on other goods,” Mugyenyi says.

Tax exclusion
Mugyenyi however says there are some instances of exclusion on motor vehicle tax on cars whose owners have had them for a specific period while abroad. “If it is a returning citizen with a car he has possessed for 12 months, no taxes are incurred,” he says adding that the exclusion is only on personal cars regardless of their value, saying it shouldn’t exceed the capacity of eight passengers.”
Mugyenyi adds that lorries and buses are considered commercial vehicles and they do not enjoy this exclusion. But dealers find problems with customers as the value (CIF) of cars keeps changing especially when the taxes have been increased.
“New changes in taxes are not properly communicated and our customers think we are cheating them when we raise the prices of cars instantly,” says Musthaq Sidik, the treasurer Used Car Dealers Association in Uganda.
He says that they (dealers) have to incur the taxes because customers refuse to adjust their minds. “Customers are always taken by surprise and they insist on old prices and we end up meeting the extra costs,” Sidik argues.
Whereas in countries such as Kenya taxes on older vehicles are higher as a measurement to discourage their importation, in Uganda vehicles made in the 1990s pay les tax regardless of the 20 per cent environmental charge and those in the post 2000 era pay more.
So it looks like URA wants us to import older vehicles instead of “newer” used vehicles. URA should clarify this because it is confusing and complicated.