2024 Finance Bill: The Annual Motor Vehicle Tax Burden

The newly proposed Finance Bill 2024 has introduced a controversial measure that will significantly impact vehicle owners across the country. The bill proposes an annual motor vehicle tax, aiming to generate more revenue for the government to cater to different projects.

Deductions will be made at the time of issuing insurance coverage.

The insurer shall remit the deductions within five(5) working days after issuing the insurance cover

For Insurers who fail to collect and remit the motor vehicle tax, the bill proposes a 50% penalty of the uncollected tax on top of the actual amount

What is the Annual Motor Vehicle Tax?

Under the new Finance Bill 2024, the government plans to impose a 2.5% annual tax on the value of vehicles. The value of the vehicle shall be determined based on the make, model, and engine capacity.

Vehicle owners will pay up to ksh.100,000 or a minimum of ksh.5,000.

Vehicles exempted:

·         Ambulance

·         Government-owned vehicles

·         Kenya Defense Forces (KDF)

·         National Police Service

·         National Intelligence Services

·         County Government

·         Persons excepted from tax under the Privileges and Immunities Act.

The ripple effects of the tax…

Critics of the proposed tax have raised concerns about the potential financial burden on middle-class and low-income households, for whom owning a vehicle is a necessity rather than a luxury. They argue that the tax could disproportionately affect these groups, making vehicle ownership unaffordable for many.

Further, the relentless surge in fuel prices and the high cost of spare parts have already drained the pockets of countless vehicle owners, leaving them gasping for financial relief. Imposing a new motor vehicle tax now would be the final crushing blow, mercilessly breaking the backs of these hard-working individuals who rely on their vehicles for their livelihoods and daily commutes. This additional burden would push them deeper into economic hardship, stripping away their dignity and any hope of financial stability.

Tying the tax to insurance will push many Kenyans to opt for third-party insurance covers. As a result, many motorists will be exposed to higher risks and increase their out-of-pocket expenses for repairs in case of accidents.

Moreover, the shift to third-party will reduce income for insurance companies thus lowering corporate tax contributions. In response insurance companies will have to downsize their workforce further reducing the tax collected by the government.

Additionally, there are concerns about the potential impact on the automotive industry, as higher taxes may discourage vehicle purchases, leading to a decline in sales and job losses. For example, Uber and Bolt have threatened to exit the Kenyan market if the bill is passed.

Kenyan motor vehicle owners need to brace for tough economic times if the bill is passed.

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