The proposed motor vehicle tax under the Finance Bill 2024 is set to add more financial strain for car owners in Kenya.
According to the proposal, motor vehicle tax would need to be paid to the Commissioner at the time of obtaining an insurance cover for each vehicle.
The tax would be calculated based on the value of the vehicle, determined by factors such as its make, model, engine capacity, and year of manufacture, as outlined in the Third Schedule of Finance Bill 2024.
With the 5% remittances if enacted, an individual who buys a car worth Kshs 1 million will be expected to pay the government Kshs 50,000 yearly.
One of the key provisions of the proposed law mandates that insurers collect and remit the motor vehicle tax within five working days after issuing an insurance cover for a motor vehicle.
Details of Motor Vehicle Tax
To enforce compliance with the tax requirements, the proposal includes penalties for insurers who fail to collect and remit the tax as mandated.
The penalties include a financial penalty equivalent to fifty percent of the uncollected tax, in addition to the obligation to pay the actual amount of the uncollected tax.
“Insurers who fail to collect and remit the tax would be subject to a penalty equivalent to fifty percent of the uncollected tax, in addition to paying the actual amount of the uncollected tax,” read the proposed draft bill in part.
According to the draft policy bill, these penalties are intended to deter non-compliance and ensure that insurers fulfill their tax collection responsibilities diligently.
Also Read: Employers to Pay More Tax in New Proposed Bill
Categories of Vehicles Exempted
However, certain categories of vehicles are exempted from the motor vehicle tax, including ambulances and vehicles owned by various governmental bodies and agencies, as well as individuals exempt from tax under the Privileges and Immunities Act.
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“Ambulances and those owned by governmental bodies such as the national government, county government, Kenya Defence Forces, National Police Service, and National Intelligence Service, as well as individuals exempt under the Privileges and Immunities Act, will be spared from the levy,” stated the Draft Finance Bill 2024.
The proposed tax comes at a time when Kenya’s automotive industry is facing various challenges, including supply chain disruptions and regulatory changes.
The Government has planned to introduce Motor Vehicle Circulation tax, in the medium term too, on all motor vehicles based on a flat rate or on the engine capacity of the vehicle.
Also Read: KRA Faces Potential Loss of Ksh1.7 Trillion in Uncollected Taxes- Auditor General
The proposed taxation, as per the Treasury’s Medium-Term Revenue Strategy, is set to be progressive and will be implemented gradually between the upcoming financial years 2024/2025 and 2026/2027.
Vehicle owners will be required to pay this tax annually, adding a new layer of financial obligation to car ownership.
Moreover, this development coincides with the government’s plans to introduce toll stations on new highways.
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