Proposed vehicle tax is against the law, expert tells House team

Finance Bill

National Assembly Finance and National Planning Committee chairman Kimani Kuria addresses journalists in Nairobi on May 13, 2024.

Photo credit: DENNIS ONSONGO | NATION

What you need to know:

  • Presenting views on the bill to the National Assembly Finance and National Planning Committee yesterday, Mr Ernest Muriu of Ernest and Associates, said the imposition and administration of such tax is the preserve of devolved governments.
  • The Finance Bill, which is at the public participation stage, proposes to introduce a provision under section 12 of the Income Tax Act to impose the motor vehicle circulation tax on the owners at 2.5 per cent of the value of the car.

The inclusion of a vehicle tax in the 2024 Finance Bill has been criticised on grounds that it goes against the Constitution.

Presenting views on the bill to the National Assembly Finance and National Planning Committee yesterday, Mr Ernest Muriu of Ernest and Associates, said the imposition and administration of such tax is the preserve of devolved governments.

The Finance Bill, which is at the public participation stage, proposes to introduce a provision under section 12 of the Income Tax Act to impose the motor vehicle circulation tax on the owners at 2.5 per cent of the value of the car.

However, Mr Muriu said the proposed tax is not an income.

“The proposed motor vehicle tax is a property rate that touches on county governments. Only counties can impose the tax and not the national government,” he told the team chaired by Molo MP Kimani Kuria.

The Constitution says any bill that touches on county governments must be considered by the National Assembly and Senate.

With the enactment of the Finance Bill being a preserve of the National Assembly, the proposed motor vehicle tax could be misplaced, he said.

Mr Muriu based his arguments on Articles 40 (3) (b), 209 (1) and 260 as well as section 5 of the Rating Act.

Article 40 (3) (b) of the Constitution, for instance, says the state shall not deprive a person of property unless the deprivation is for a public purpose or in the public interest and is carried out in accordance with the law.

Mr Muriu also cited Article 209 (1) that provides taxes the national government may impose. These include income tax, VAT, customs duty and excise tax.

Part three of the Article, however, says only a county may impose property rates, entertainment taxes and any other tax that it is authorised to impose.

The motor vehicle tax shall be payable to the Kenya Revenue Authority (KRA) at the time of issuing of the insurance cover. The tax will be based on the value of the vehicle.

“The value of the motor vehicle shall be determined on the make, model, engine capacity and year of manufacture,” the bill says.

This means an insurer shall collect and remit the tax within five working days after issuing a car cover.

An insurer who fails to collect and remit motor vehicle tax shall be liable for a penalty equivalent to 50 per cent of the uncollected tax and the actual amount of the tax.

Vehicles exempted from the tax include ambulances, vehicles owned by the national and county governments, Kenya Defence Forces, the National Intelligence Service or any other person or entity exempted under the Privileges and Immunities Act.

At the same time, MPs clashed with makers of edible oils over the impending price increase.

The borne contention between the National Assembly Committee on Trade, Industries and Cooperatives and the manufacturers was the factor justifying the impending increase of prices.

The price of a litre of edible oil is expected to rise by Sh160.

The move is due to a proposal of 25 per cent on excise duty on raw and refined vegetable oils contained in the Finance Bill, 2024.

Manufacturers attribute the increase in price of edible oils in the recent past to the global rise in the price of crude palm oil, increase in the cost of inputs, a two per cent levy implemented through the Nut and Oil Crops Directive, a 10 per cent duty on packaging materials and the international rise of freight rates.

Aldai MP Marianne Kitany said most of the factors cited by the edible oil manufacturers have improved, meaning the prices have gone down.

“The auxiliary factors causing the increase of your prices are within the range and are now stable. What is causing prices of your products to go up?” Ms Kitany asked.

“The cost of fuel has gone down, power prices have reduced, the price of crude oil has also fallen and the shillings is performing well against the American dollar.”

She told the companies to exploit opportunities like tax exemptions and Special Economic Zones so that the cost is not passed to consumers.

Kajiado South MP Samuel Parashina asked the companies what they have done to reduce the prices of their products.

Mr Parashina expressed concern that the edible oil business “seems to be for a class of people who decree prices at the expense of Kenyans”.

Kieni MP Njoroge Wainaina wanted to know if the performance of the shillings against the dollar in recent months was reflected in the pricing.

Masinga MP Joshua Mbithi called on the players to encourage the growing of oil palms in Kenya.

“This country has a lot of idle land” Mr Mbithi said.

Edible Oil Manufacturers Chairman, Fathi Hayel Saeed, said the industry is not a monopoly, adding that anyone with resources can open a factory.

He said the fact that there are only 13 oil processors in Kenya does not mean it is an exclusive business as other countries have fewer firms.

Mr Saeed cited Egypt, which has seven edible oil manufacturers, Tanzania five, with Uganda having six.

“The industry is not dominated by big boys. It is an open market,” he said.

Bidco Oil Refineries Ltd boss Vimal Shah said the companies cannot be blamed for the impending increase in prices, calling for manufacturers to be exempted from taxes, “the same way the government deals with foreign companies”.

He said authorities need to stop changing policies if they want to promote manufacturing.

“This year you have excise duty, next year remove it,” he said.