Motorists are likely to face higher risks if motor circulation tax in the Finance Bill, 2024 is implemented, Association of Kenya Insurers (AKI) has warned.
- AKI argues that with motor vehicle insurance being compulsory in Kenya, it anticipates a major shift towards Third Party motor insurance if the tax is implemented.
- Consequently, motorists will face higher risks as they will essentially only be covered for third-party liabilities, leaving their own vehicles unprotected in the event of accidents. This could burden motorists with significant out-of-pocket expenses for repairs or replacements.
- The Finance Bill, 2024 has introduced a motor circulation tax set at 2.5 per cent of the vehicle value, capped at a maximum of KSh 100,000.
Aki says this imposition will notably increase the cost of motor insurance. Currently, the average comprehensive insurance premium rate stands at 5 per cent, and with the additional 2.5 per cent, the total premium rate surges to 7.5 per cent.
“A shift towards third-party coverage will lower insurers’ income, which will translate to lower corporate tax contributions. Additionally, a reduction in insures’ income will prompt downsizing the workforce subsequently reducing employee tax revenues to the Government.”
“We implore the National Assembly to reconsider the proposed motor circulation tax, as its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large. As the representative body of the insurance sector, we stand prepared to engage continuously with all stakeholders to cultivate a sustainable business environment,” AKI said in a statement.
Proposal in the bill puts responsibility on insurance companies to collect the motor circulation tax and remit within five working days after issuing a motor vehicle insurance cover.
“An insurer who fails to collect and remit motor circulation tax shall be liable to pay a penalty equivalent to fifty per cent of the uncollected tax and the actual amount of the uncollected tax,” reads the proposed bill.
The new proposal, which is seeking new avenues to mobilise money for the government, has created the motor circulation tax to be paid on the value of a car provided that the amount of tax payable shall not be less than KSh 5,000 and shall not be more than KSh 100,000.
The value of a motor vehicle shall be determined on the basis of the make, model, engine capacity in cubic centimetres and year of manufacture of the motor vehicle. The motor vehicle tax shall not be payable in respect of an ambulance, or a motor vehicle owned by the national government, county government, Kenya Defence Forces, National Police Service, National Intelligence Service or a person exempt from tax under the Privileges and Immunities Act.
The Finance Bill has been submitted by the Cabinet Secretary for the National Treasury and Economic Planning and formulates proposals relating to revenue raising measures including liability to, and collection of taxes. It amends the Income Tax Act, the Value Added Tax Act, the Excise Duty Act, The Tax Procedures Act and the Miscellaneous Fees and Levies Act (Cap.469C).
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