Finance Bill 2024: Kenya Insurers Oppose 2.5% Motor Vehicle Tax Proposal For Car Owners

• President William Ruto's administration proposed to introduce a 2.5% tax on the value of cars owned by Kenyans
• The motor vehicle circulation tax is part of the measures in the Finance Bill 2024, seeking to raise revenue for the fiscal year 2024/25 budget
• The Association of Kenya Insurers (AKI) raised concerns about the levy, saying it will reverse the gains made in the sector

TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Most Kenyan motorists will drop their insurance cover should the Finance Bill 2024 proposals see the light.

The Association of Kenya Insurers (AKI) protested the motor vehicle circulation tax being proposed in the Bill.

Why Kenya insurers oppose motor vehicle tax

The 2.5% levy on the value of cars owned by Kenyans will see motorists pay an extra range of KSh 5,000 and KSh 100,000 on their insurance fees per year.

AKI chief executive officer Tom Gichui warned that the proposal will reverse the gains made in the sector.

"If you tax motor vehicle value, you will expose Kenyans to many future problems. The current economic state has seen many opt for third-party insurance, and adding an extra 2.5% levy will worsen the situation," said Gichui.

In a statement, Gichui explained that the cost of insurance for motorists will rise to 7.5% from an average of 5%.

How motor vehicle tax will affect Kenya insurers

Gichui explained that motor vehicle insurance accounts for 34% of the business in the country.

The CEO noted that most motorists who are on comprehensive cover will opt for third-party cover, which is risky for them in case of an accident.

"That tax is going to add a monumental impact on motor insurance premiums. Motor accounts for 34% of all the insurance premiums that are written in this country on general insurance," he said.

In an exclusive interview to TUKO.co.ke, AAR insurance CEO Justine Kosgei said the 2.5% motor vehicle tax proposal will hurt, not only the sector but also the country's economy.

"As AAR Kenya, we agree with AKI that it is good for the government to raise tax revenue for development. However, they need to do it when the economic environment is conducive. The proposed tax, if passed, will lower insurance companies income and lead to job losses among other effects," said Kosgei.

Is there a penalty for insurers in motor vehicle tax?

The Finance Bill 2024 directed that the motor vehicle tax will be payable by owners at the time of issuance of an insurance cover.

It further stipulated that insurance companies that will not collect and remit the tax risk a penalty of 50% of the tax and the actual amount of the uncollected tax.

National Assembly Finance Committee chair and Molo MP Kimani Kuria referred to the motor vehicle tax as a user-pay tax, saying those who do not want to pay should stop using their cars.

What to know about motor vehicle tax

• Kenyans raised concerns over motor vehicle tax proposals in the Finance Bill 2024.
• Kuria revealed that the amount targeted from the levy is KSh 58.02 billion if the proposal is approved.

Proofreading by Asher Omondi, current affairs journalist and copy editor at TUKO.co.ke.