The Motorists Association of Kenya has taken a firm stand against the proposed 2.5% motor vehicle circulation tax, warning of dire consequences if the tax is implemented. In a strongly-worded statement, the association highlighted that this new tax would lead to inevitable price hikes in public transport due to soaring operational costs.
“Vehicle owners, already struggling with financial losses, will pressure drivers to meet steep daily targets, exacerbating the high cost of operations. This will psychologically impact drivers, increasing the likelihood of road accidents—a challenge our country is already grappling with,” the statement read.
The Numbers Game
Under the current regulations, the tax is capped between Sh5,000 and Sh100,000. However, the proposed 2024 Finance Bill seeks to calculate the motor vehicle circulation tax at 5% of the vehicle’s value, with the requirement to remit this to the Kenya Revenue Authority (KRA) within five working days. Failing to do so would incur a hefty penalty of 50% of the tax owed.
Industry-Wide Concerns
The Motorists Association isn’t alone in its opposition. The Association of Kenyan Insurers (AKI) has echoed these concerns, emphasizing that the proposed tax would inflate current insurance premiums from 5% to 7.5%. This increase could drive many motorists to opt for third-party coverage, leaving insurers financially vulnerable.
AKI Executive Director Tom Gichuhi urged Members of Parliament to reject the proposal, warning that it could reduce insurance company earnings and, consequently, corporate tax revenue for the government. He also cautioned that this could lead to mass layoffs in the industry, affecting thousands of jobs.
“We implore the National Assembly to reconsider the proposed motor vehicle circulation tax, as its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large,” Gichuhi stated.
The Potential Fallout
The Motorists Association of Kenya argues that the tax hike would have severe repercussions for an industry that has shown significant growth over the years. They warn that increased operational costs will lead to higher fares, putting additional financial strain on commuters and potentially increasing road accidents due to the stress placed on drivers.
As the debate over the proposed tax continues, all eyes are on the National Assembly to see whether they will heed these warnings and protect an industry critical to Kenya’s economy and daily life.
