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Malawi tax on second-hand vehicles cuts emissions, government says

Source: Thomson Reuters Foundation - Tue, 31 Dec 2013 04:48 PM
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A motorist pumps fuel into his vehicle in Malawi's commercial capital, Blantyre. REUTERS/Eldson Chagara
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BLANTYRE, Malawi (Thomson Reuters Foundation) – Officials in Malawi’s ministry of environment and climate change management say hiking excise duty levied on imported second-hand vehicles is helping the country to curb planet-warming emissions.

The revised taxation system, introduced three years ago, applies an excise duty to second-hand vehicles that rises in line with the age of the vehicle.

This has led to a decrease in the number of older - and more polluting - vehicles on the road, officials say. 

“With the new measures in place, we have managed to contain warming by cutting the amount of pollution by emissions from these old second-hand vehicles,” said Yanira Ntupanyama, principal secretary in the environment ministry.

Many older cars emit higher levels of carbon dioxide, methane, nitrous oxide and hydrofluorocarbons, all of which are greenhouse gases that trap heat and warm the climate.

Ntupanyama acknowledged that the government has not measured the decrease in imports of second-hand cars, or in emissions of greenhouse gases.

“However, given the contribution to warming by gases emitted from vehicles, reducing the sources of these emissions means we are reducing warming,” she said.

Prior to 2010, when the measures were introduced, the country was a destination for large numbers of second-hand vehicles, imported mainly from Japan and the United Arab Emirates, some of them dating back as far as the 1980s.

Second-hand vehicles are popular with Malawians who cannot afford brand new cars in a country where the minimum wage is just 13,000 Malawian kwacha (about $30) a month.

Authorities say up to 3,000 used vehicles were being imported into the country monthly. The former president, Bingu wa Mutharika, even blamed crippling fuel shortages that hit the country between 2009 and 2011 on the large number of vehicles.

NEWER CARS CHEAPER

But the new taxes on older vehicles have reduced demand.

George Mwandira, who imports second-hand vehicles for resale, said the excise duty levied on the cost, insurance and freight (CIF) of second-hand vehicles has made them very expensive, and the sliding scale means that the overall cost of newer vehicles is lower than for older ones.

“If one wants to spend less on imported second-hand vehicles, then they will have to import those vehicles that are not so old,” he said. “We are importing newer cars to avoid these huge taxes.”

Nevertheless, Mwandira said he is not getting as many customers as he used to.

Smith Zimba, who runs a taxi service, cannot afford to replace his old fleet of two vehicles.

“The prices of second-hand vehicles have gone very high. Vehicles that were costing around 600,000 kwacha ($1,400) are now costing as much as 3 million ($7,000),” said Zimba. “Many of us are failing to raise as much as that. As a result, we cannot buy vehicles anymore.”

John Biziwick, commissioner general of the Malawi Revenue Authority (MRA), explained that, for example, all second-hand vehicles with an engine capacity of up to 1,500 cc and below eight years of age attract a basic import duty of 25 percent on their CIF cost, with a further 16.5 percent value added tax (VAT) levied on the sum of the CIF and import duty.

Vehicles between 8 and 12 years old with the same engine capacity attract an additional excise duty of 35 percent, levied on the sum of the CIF, VAT and import duty.

For vehicles over 12 years old, the excise is 50 percent. And duties are higher for vehicles with larger engine capacities.

PORT-OF-ENTRY CHECKS

Most second-hand vehicles are imported through Tanzania’s main port of Dar es Salaam, with some coming through Durban in South Africa. Insurance and freight costs are calculated from the vehicle’s point of purchase to the port of arrival.

The new system was implemented in tandem with a decision by the MRA to suspend all inland clearance of imported goods, including second-hand vehicles, in order to reduce the likelihood of vehicles being smuggled to avoid excise duty.

All imported goods are now cleared at the port of entry, and are detained there if their owners do not have the money to pay duties.

Previously, Biziwick explained, imported goods were stored at the MRA’s warehouses across Malawi, but some owners would produce fake documentation to get the vehicles out of bond.

“We have not calculated the difference between the number of vehicles that were imported into the country before the enforcement of the two systems, and those being imported into the country now. But we’ve noticed that we are now clearing newer cars,” said Biziwick.

“Everyone who imports older cars into the country knows that they will be forced to dig deeper into their pockets to have these cars cleared at our checkpoints.”

Karen Sanje is a Malawi-based journalist with an interest in climate issues.

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