NAIROBI, Kenya- Kenya’s Members of parliament (MPs) have hinted at passing the proposed 2.5% motor vehicle tax proposed in the Finance Bill 2024.
This followed revelations in the second week of public participation as stakeholders including the Kenya Association of Insurers (AKI) submitted their views.
Will motor vehicle tax affect the 2024/25 budget?
The National Assembly Finance Committee led by Molo MP Kuria Kimani argued that removing the tax will slash the budget for 2024/25.
Addressing the hearing on Monday, June 3, Kimani revealed that the government is not ready to cut its budget.
“We will be reducing the budget by Sh58 billion if we get rid of the motor vehicle tax. No one wants the budget to be reduced,” said Kimani
The Association of Kenya Insurers opposed the levy, noting that it will be an extra burden to Kenyans and the economy at large.
Why insurers oppose motor vehicle tax
“If we pass this tax, we will be exposing Kenyans to out of pocket expenses. Most of them have not been able to pay their insurance instantly. But the 2.5% motor vehicle tax has no room for instalments,” argued AKI CEO Tom Gichui.
Speaking exclusively to Y News, AAR Insurance CEO Justine Kosgei maintained that the new levy will push car owners, previously on comprehensive insurance to take third party cover.
“The 2.5% motor vehicle tax is not viable at the current economic environment in Kenya. What the government need to do is to listen to the sector players for alternative ways to raise revenue. Otherwise, this levy will hurt many motorists and the economy will suffer,” said Koskei.
Kosgei said the MPs should consider the voice of Kenyans before deliberating on the new tax.
How much will be charged on motor vehicle tax
The Finance Bill 2024 proposed a 2.5% tax on the value of the car, capping the amount payable at the end of the year between Sh5,000 to Sh100,000.
This means car owners with a vehicle value of up to Sh2 million will pay Sh100,000 as opposed to the required amount of Sh5 million.
It also proposed that the amount due will be paid during the annual submission of the insurance cover fee and collected by insurers.
The Bill stipulated that insurance companies that will fail to collect and remit the tax will pay a penalty of 50pc of the tax and the actual amount of the uncollected tax.
Who will pay motor vehicle tax?
All car owners in the country will be subject to the motor vehicle tax, should the proposals in the Finance Bill 2024 see the light.
The Bill exempted ambulances or motor vehicles owned by the national government, county governments, Kenya Defence Forces, National Police Services, and National Intelligence Services from paying the tax.
MP Kuria Kiman described the motor vehicle circulation tax as a user-pay tax, urging Kenyans who will not want to pay to opt for public means and stop using their private cars.
