Finance Bill 2024: Motorists oppose the proposed 2.5 pc motor vehicle circulation tax

Buses and commuters at the Green Park terminus, Nairobi. [Wilberforce Okwiri, Standard]

Motorists Association of Kenya has opposed the proposed 2.5 per cent motor vehicle circulation tax.

In a statement, the association warned that the tax, if implemented, will necessitate price hikes in public service vehicles due to an increase in operational costs among other factors.

“Vehicle owners, who are already incurring losses, will push drivers to meet their daily targets to cover the high cost of operation. This will affect the drivers psychologically leading to road crashes that the country struggles to bring down,” read their statement in parts.

Currently, the tax has been capped at a minimum of Sh5,000 and a maximum of one hundred thousand shillings.

However, in the proposed 2024 Finance Bill, the motor vehicle circulation tax is to be calculated at five per cent of the vehicle value and is to be remitted to the Kenya Revenue Authority (KRA) within five working days or risk attracting a penalty of fifty percent of the tax.

According to the association, if implemented, the increase will have grave effects on the industry which has significantly grown over the years.

Reiterating their remarks, the Association of Kenyan Insurers (AKI) noted that if implemented, the proposed tax will raise the current 5 per cent insurance premiums charge pegged on vehicle valuation to 7.5 per cent, thus pushing many buyers to take third-party covers leaving them(insurers) exposed to financial losses.

AKI Executive Director Tom Gichuhi urged Members of Parliament to shoot the proposal down as it might reduce earnings for insurance companies, translating to lower corporate tax for the government, while opening a window for mass layoffs of those who elected them.

“We implore the National Assembly to reconsider the proposed motor circulation tax, as its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large,” said Gichuhi.