Insurers oppose proposed motor circulation tax in Finance Bill, 2024

Traffic jam along Globe Roundabout in Nairobi. [Elvis Ogina, Standard]

Insurers in the country are urging legislators to discard the proposed motor circulation tax in the Finance Bill, 2024.

The Association of Kenya Insurers (AKI) has voiced its concerns over the potential implications of the proposed tax.

Among the proposals fronted by the Bill is the introduction of a motor circulation tax set at 2.5 per cent of the vehicle value, capped at a maximum of Sh100, 000.

AKI says the imposition will notably increase the cost of motor insurance.

Currently, the average comprehensive insurance premium rate stands at 5 per cent and with the additional 2.5 per cent, the total premium rate surges to 7.5 per cent.

With motor vehicle insurance being compulsory in the country, AKI anticipates a major shift towards third-party motor insurance if this tax is implemented.

"Consequently, motorists will face higher risks, as they will essentially only be covered for third-party liabilities, leaving their own vehicles unprotected in the event of accidents. This could burden motorists with significant out-of-pocket expenses for repairs or replacements," said AKI Executive Director Tom Gichuhi in a statement on May 17.

Gichuhi said a shift towards third-party coverage will lower insurers' income which will translate to lower corporate tax contributions.

Additionally, he observes, that a reduction in insurers' income will prompt the downsizing of the workforce subsequently reducing employee tax revenues to the Government.

"While we acknowledge the necessity of expanding our tax revenue to meet the demands of a growing economy, we advocate for a focus on creating an environment conducive to business growth," noted Gichuhi.

"By doing so, increased tax collection can be achieved substantially and more sustainably," he added.

Gichuhi implored the National Assembly to reconsider the proposed motor circulation tax, noting, its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large.

"As the representative body of the insurance sector, we stand prepared to engage continuously with all stakeholders to cultivate a sustainable business environment," he said.