The 2.5% motor vehicle charge that was originally planned in the Finance Bill 2024 has been cancelled by the Kenyan government due to its anticipated negative effects on the insurance sector.
According to the radio station CapitalFM, Mr. Kimani Kuria, the chairwoman of the Finance and Planning Committee, informed the local media that the idea would have rendered the insurance business unsustainable.
“We have agreed that the motor vehicle tax cannot be amended through an Income Tax Act, and pegging it on insurance would cripple the insurance business and make it difficult for Kenyans taking third-party insurance,” said Mr. Kuria.
Treasury Cabinet Secretary Njuguna Ndung’u had stated that he planned to impose an annual motor vehicle tax of 2.5% of the car’s worth, subject to a minimum of KES5,000 ($38.65), in order to increase the tax base and establish Kenya’s independence.
In the event that the plan was approved, auto insurance would face penalties for neglecting to collect and submit the tax to the Kenya Revenue Authority (KRA).
The Association of Kenya Insurers (AKI) encouraged the National Assembly to remove the proposed automotive circulation tax from the Finance Bill, 2024, in a statement released in May 2024.
AKI said, “With motor vehicle insurance being compulsory in Kenya, we anticipate 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 vehicles unprotected in the event of accidents. This could burden motorists with significant out-of-pocket expenses for repairs or replacements.
“Moreover, a shift towards third-party coverage will lower insurers’ income, which will translate to lower corporate tax contributions. Additionally, a reduction in insurers’ income will prompt downsizing the workforce, subsequently reducing employee tax revenues to the government.”
