Kenya’s Finance Bill 2024 Proposed Motor Vehicle Tax a Threat to Car Ownership

Owning a car in Kenya is about to become a more financially demanding affair. On top of the sky-high fuel taxes, expensive insurance premiums, and the ever-present risk of giving chai to corrupt traffic officers, the government’s proposed Finance Bill 2024 threatens to add another crippling weight – a new Motor Vehicle Tax.

What is this Motor Vehicle Tax all about? Imagine having to pay an annual fee based on the value of your car. That’s right, the Finance Bill 2024 proposes a tax of 2.5% on the worth of your vehicle. So, if your car is valued at Sh1 million, you’d be looking at a tax bill of Sh25,000 every year.

But wait, there’s more! The percentage may seem modest on paper, but the actual financial burden could be devastating for many, particularly the middle-class population. The minimum tax payable is set at Sh5,000 while the maximum is capped at Sh100,000. Why is this unfair? Because the wealthy, with cars worth Sh4 million and above, will pay the capped rate.

How much you pay will be determined by your vehicle’s make, model, engine capacity, and age. So, that brand-new, Porsche Cayenne you’ve been eyeing might come with a hefty tax price tag. Meanwhile, your trusty old sedan could get a more modest bill.

The tax will be collected by none other than your insurance company, meaning that when it’s time to renew your cover, you’ll also have to include  the Motor Vehicle Tax. The insurance company will then remit the tax within five days of issuing your cover or face a whopping 50% penalty on the uncollected amount. 

Here’s where it gets interesting. Government vehicles (belonging to those who are responsible for passing the bill among others), ambulances, Kenya Defence Forces, National Police Service, National Intelligence Service, or a person exempt from tax under the Privileges and Immunities Act Cap. 179, will be exempted. 

The bill proposes tax measures that the Kenyan government plans to implement to raise revenue for its ambitious projects. It also includes a provision that empowers the Commissioner to issue guidelines for determining the value of a motor vehicle.

The potential impact 

Now, let’s talk about the elephant in the room: how this tax could affect you, the average Kenyan motorist.

For starters, it’s going to add to the already heavy cost of owning a car in Kenya. Between fuel taxes, insurance premiums, and now this new tax, your monthly budget might start looking a little tight.

Fuel taxes are already enough punishment. They account for a whopping 40% of the cost of every litre of diesel and super petrol. This exorbitant levy not only strains budgets but also constraints economic productivity by driving up the cost of transportation for goods and services, especially since every time you fuel your car, nearly half the cost goes directly to the government.

Then there’s the annual insurance, which mostly adds on an estimated 4% of the vehicle’s market value to your already raided pockets. Throw in the ever-rising maintenance costs, often inflated by the expensive operating environment and the expensive spare parts – depending on the vehicle – and the financial burden becomes even more overwhelming.

For those who import vehicles, the financial onslaught begins even before they take ownership. Import duties, excise duties, and value-added tax (VAT) can collectively add more than half the cost of the vehicle itself, which will make the dream of car ownership a distant reality for many Kenyans.

But it’s not just about the money. This tax could also influence your decision-making when it comes to buying a new car. Will you opt for a more modest ride to keep the tax low, or splurge on that dream machine and brace for the financial hit?

And let’s not forget about the potential consequences . On an individual level, the tax could push countless families into financial ruin, forcing them to choose between keeping their vehicles on the road or sacrificing other essential expenses like quality education, healthcare, or even food. This reduction  of disposable income could ripple throughout the economy, depressing consumer spending and stifling economic growth.

Moreover, the tax could discourage new car purchases, delivering a devastating blow to the automotive industry and its associated sectors, such as financing, insurance, and aftermarket services. With fewer Kenyans able to afford new vehicles, dealerships and manufacturers could face an existential crisis, leading to low sales, and in a worst-case scenario, business closures.

Meanwhile, as the Finance Bill 2024 makes its way through the legislative process, the concerns and financial effects  of Kenyan motorists must be given due consideration. The government must strike a delicate balance between its revenue needs and the economic well-being of its citizens, lest it risk triggering a broader financial disaster because if implemented, the Motor Vehicle Tax could change the landscape of car ownership in Kenya forever.