Trade lobby urges MPs to reduce motor vehicle tax

Maxwell Okello

AmCham, Kenya CEO Maxwell Okello gestures during a past interview at his office in Westlands, Nairobi.

Photo credit: File | Nation Media Group

The American Chamber of Commerce - Kenya (AmCham) wants Parliament to cut the proposed motor vehicle tax from 2.5 per cent to one per cent of the value of the vehicle.

 AmCham also wants the National Assembly’s Committee on Finance and National Planning to exempt agricultural and commercial vehicles from the motor vehicle tax.

The chamber’s officials appeared before the committee to present views on the proposed tax measures in the Finance Bill, 2024.

The Bill proposes to introduce a motor vehicle tax at the rate of 2.5 per cent on the value of the motor vehicle payable at the time of issuance of the insurance cover.

The motor vehicle tax is payable at the time of issuance of an insurance cover and shall be based on the value of the motor vehicle at a rate of 2.5 percent.

The Finance Bill, 2024 proposes a minimum of Sh5,000 and a maximum of Sh100,000 per annum.

The Treasury targets to collect Sh58 billion from the motor vehicle tax in the financial year starting July 1.

Bill exempts ambulances

The tax is to be collected by the insurer and remitted to the Kenya Revenue Authority Commissioner General within five working days after issuance of an insurance cover, failure to which the insurer will be liable to a late payment penalty equivalent to 50 percent of the uncollected tax.

The Bill exempts ambulances and vehicles owned by the county and national government, the Kenya Defence Forces, the Kenya Police Service, the National Intelligence Service, or persons exempt from tax by the Privileges and Immunities Act.

AmCham asked MPs to consider scrapping the caps on the minimum and maximum amount payable by those owning motor vehicles.

“We propose a compromise that motor vehicle tax be reduced to one percent based on the third party insurance valuation,” Maxwell Okello, the AmCham chief executive officer, said.

“We know that the intention of this proposal is to raise revenue for the government. We propose a compromise between the citizenry and KRA. Insurance is at least 4.5 percent of the car value for comprehensive insurance. Adding another 2.5 percent tax will be costly to car owners.”

AmCham told the committee chaired by Molo MP Kuria Kimani that if the 2.5 percent motor vehicle tax is to be introduced, it should be done progressively starting with one percent.

AmCham said subjecting commercial and agricultural vehicles to the motor vehicle tax will increase the operating costs of manufacturers and their suppliers.

“The proposed rate of 2.5 percent whilst borne in addition to the other taxes, fees, and levies applicable on the purchase, general use and maintenance of motor vehicles proves extremely punitive to taxpayers.”

Agricultural motor vehicles

AmCham proposed an expansion of the proposed list of motor vehicles exempt from the proposed tax to include commercial and agricultural motor vehicles, as well as a revision of the applicable rate from 2.5 percent to one percent to create a compromise between the government’s aims of increasing tax revenue and the taxpayers’ concerns about the increasingly unbearable cost of living.

Mr Kimani said one of the things the committee is grappling with is whether the motor vehicle tax sits in the right Act.

 The Association of Kenya Insurers told MPs that out of the 2.5 million cars on the Kenyan roads, only 1.5 million are insured.

“At any one moment, 1.5 million vehicles carry insurance, yet with another one million vehicles which do not have insurance cover and they have their own way of using public roads and get away with,” Tom Gicheru, the AKI chief executive said.

“If we introduce this tax, we will ensure the 1.5 million vehicles which have insurance cover will drop and avoid the motor vehicle tax.”

Mr Gicheru said insurers give their customers insurance that is payable in instalments and collecting the motor vehicle tax upfront will be a toll order.

“If we are giving customers to pay by way of instalments, the Sh100,000 motor vehicle tax has no room for instalment,” Mr Gicheru said.

“If you look at the Matatu owners, they pay their premiums on a monthly basis. If it were to attract tax at 2.5 percent of the value of the vehicle, say Sh8 million, I am not too sure we will be able to provide Matatus with insurance.”