American Chamber of Commerce – Kenya urges MPs to reduce motor vehicle tax

The American Chamber of Commerce – Kenya (AmCham) wants Parliament to cut the proposed motor vehicle tax from 2.5 per cent to one per cent of the value of the vehicle.

AmCham also wants the National Assembly’s Committee on Finance and National Planning to exempt agricultural and commercial vehicles from the motor vehicle tax.

The chamber’s officials appeared before the committee to present views on the proposed tax measures in the Finance Bill, 2024. The Bill proposes to introduce a motor vehicle tax at the rate of 2.5 per cent on the value of the motor vehicle payable at the time of issuance of the insurance cover.

The motor vehicle tax is payable at the time of issuance of an insurance cover and shall be based on the value of the motor vehicle at a rate of 2.5 per cent.

The Finance Bill proposes a minimum of Sh5,000 and a maximum of Sh100,000 per annum. The Treasury targets to collect Sh58 billion from the motor vehicle tax in the financial year starting July 1.

The tax is to be collected by the insurer and remitted to the Kenya Revenue Authority Commissioner-General within five working days after issuance of an insurance cover, failure to which the insurer will be liable to a late payment penalty equivalent to 50 per cent of the uncollected tax.

The Bill exempts ambulances and vehicles owned by the county and national governments, the Kenya Defence Forces, the Kenya Police Service, the National Intelligence Service, or persons exempt from tax by the Privileges and Immunities Act.

AmCham asked MPs to consider scrapping the caps on the minimum and maximum amount payable by those owning motor vehicles. “We propose a compromise that motor vehicle tax be reduced to one per cent based on the third party insurance valuation,” said Mr Maxwell Okello, the AmCham chief executive officer.

“We know that the intention of this proposal is to raise revenue for the government. We propose a compromise between the citizenry and KRA. Insurance is at least 4.5 per cent of the car value for comprehensive insurance. Adding another 2.5 per cent tax will be costly to car owners.”

AmCham told the committee chaired by Molo MP Kuria Kimani that if the 2.5 per cent motor vehicle tax is to be introduced, it should be done progressively starting with one per cent. AmCham said subjecting commercial and agricultural vehicles to the motor vehicle tax will increase the operating costs of manufacturers and their suppliers.

“The proposed rate of 2.5 per cent whilst borne in addition to the other taxes, fees, and levies applicable on the purchase, general use and maintenance of motor vehicles proves extremely punitive to taxpayers.”

AmCham proposed an expansion of the proposed list of motor vehicles exempt from the proposed tax to include commercial and agricultural motor vehicles, as well as a revision of the applicable rate from 2.5 per cent to one per cent to create a compromise between the government’s aims of increasing tax revenue and the taxpayers’ concerns about the increasingly unbearable cost of living. Mr Kimani said one of the things the committee is grappling with is whether the motor vehicle tax sits in the right Act.

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