High-end car owners in Kenya are set to face significant financial impacts following the recent budget announcement for the 2024/25 fiscal year.
Treasury Cabinet Secretary Njuguna Ndung’u has introduced substantial changes to the Motor Vehicle Circulation Tax, removing the previous cap of Ksh.100,000 and imposing a new tax rate of 2.5% of a vehicle’s value.
Under the proposed Finance Bill 2024, vehicle owners will now be required to pay an annual tax based on the value of their vehicles, with a minimum payment of Ksh.5,000.
This change significantly impacts owners of luxury cars. For instance, the owner of a 2018 Toyota Land Cruiser Prado, valued at approximately Ksh.10.2 million, will now pay Ksh.255,000 annually. A motorist with a Mercedes-Benz i8, valued at around Ksh.18 million, will face an annual tax of Ksh.450,000.
The move, which was announced on Thursday during the budget reading, has sparked controversy and concern among vehicle owners and the insurance sector. The Association of Kenya Insurers (AKI) has criticized the new tax policy, warning that it may lead to a shift towards third-party insurance, leaving vehicles without comprehensive coverage.
“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,” stated Tom Gichuhi, AKI’s executive director, in May 2024.
According to the new regulations, if a vehicle owner fails to pay the required tax, the insurance company will be liable for a fine amounting to 50% of the unpaid tax, in addition to the tax amount itself. This penalty provision aims to ensure compliance and widen the tax base, with the government projecting to collect Ksh.58 billion from this initiative.
To address the growing discontent, National Assembly Finance Committee Chair Kuria Kimani suggested that those unwilling to pay the tax should consider alternative means of transportation.
“We are saying, fine, if you don’t want to pay the vehicle circulation tax, then don’t use the car. Just as you avoid toll fees on the expressway by taking a different route, seek other means of transportation,” Kimani remarked.
The new tax will likely have a cascading effect on public transport costs. Many Kenyans who rely on buses and matatus are bracing for tougher times, as operators are expected to transfer the additional tax burden to passengers, potentially leading to increased fares and overall transportation costs.
However, the policy does include some exemptions. Vehicles owned by the military, police, National Intelligence Service, national and county governments, and those owned by individuals exempt under the Privileges and Immunities Act will not be subject to the annual tax. Ambulances are also exempt from this tax.
