2024 Finance Bill: Insurers oppose proposed motor vehicle circulation tax

2024 Finance Bill: Insurers oppose proposed motor vehicle circulation tax

File photo of cars, SUVs and trucks on display at a Toyota dealership. (Photo by ROBYN BECK / AFP)

Kenyan insurers want the National Assembly to throw out the proposed motor vehicle circulation tax in the 2024 Finance Bill.

The proposed legislation seeks to introduce an annual tax that will be paid during motor vehicle insurance coverage acquisition. Set at a minimum of Ksh.5,000, the levy will be 2.5 per cent of the vehicle’s value.

However, the Association of Kenya Insurers (AKI) says the tax will significantly increase the cost of motor insurance, whose premium rate stands at 5 per cent for comprehensive covers. 

With the additional 2.5 per cent, the premium will hit 7.5 per cent, which insurance providers say will lead motorists to opt for third-party insurance covers to adjust to the rising living cost.

“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,” AKI executive director Tom Gichuhi said in a statement on Friday.

“This could burden motorists with significant out-of-pocket expenses for repairs or replacements.”

He added that a shift towards third-party coverage will lower insurers' income, resulting in lower corporate tax contributions.

“A reduction in insurers' income will prompt downsizing the workforce subsequently reducing employee tax revenues to the government,” Gichuhi said, calling for a tax regime which creates an enabling environment for business growth.

Per the 2024 Finance Bill, ambulances, and government-owned vehicles are exempt from the motor vehicle circulation tax as stipulated in the Privileges and Immunities Act.

Failure to collect and remit motor vehicle tax within five working days after issuing of motor vehicle insurance cover, an underwriter shall be liable to a penalty of 50 per cent of the uncollected tax and the actual amount of the uncollected tax.

The 2024 Finance Bill is sponsored by Molo MP Kimani Kuria, who also chairs the National Assembly Finance Committee.

Among the legislations the proposed law seeks to amend are the Income Tax Act (Cap.470), the Value Added Tax Act (Cap.476), the Excise Duty Act (Cap. 472), the Tax Procedures Act (Cap. 469B) and the Miscellaneous Fees and Levies Act (Cap.469C).

Others are the Affordable Housing Act (No.4 of 2024), the Industrial Training Act (Cap. 237), the Data Protection Act (Cap 411C), the Public Finance Management Act (Cap.412), and the Kenya Revenue Authority Act (Cap.469).

The bill is in the public participation stage, whose deadline has been set for May 28.


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