By Mercy Kibet Jebaibai*
"To expand the tax base and make our country self-reliant, I propose to introduce an annual motor vehicle tax rate of 2.5 percent of the value of the vehicle subject to a minimum amount of Sh.5,000 per annum," Professor Ndung'u.[i]
In the bustling streets of Kenyan cities, a new policy shift steered conversations from matatu stages to corporate boardrooms. The Finance Bill, 2024, ushered in a controversial tax proposal, the motor vehicle tax. which threatened to redefine the Kenyan automotive world. This tax, at 2.5% of a vehicle's market value, was a reflection of Kenya's journey towards economic sustainability. With every car taxed, the government saw a stream of funds flowing in, hence fueled economic development.[ii]However, at what cost? In "highway or high cost?" I delve into the heart of this tax reform exploring its implications, if it were enacted, and the balance between revenue generation and the burden on the car owners. In addition, I examine the motivation behind the reform. I further seek to analyse whether this reform could have fueled progress or rather it could have hindered it.
Roll out your car's details- the make, the model, the year of manufacture-, that would be the new math in town. The motor vehicle was to take all that and hit a car owner with a 2.5% tax on what the car is worth.[iii] This meant that if a car was valued at two million shillings, the government would take fifty thousand shillings, which is equivalent to 2.5% of the car's value.[iv] Consequently, there was a consideration of the car's depreciation value in calculating the tax to be paid annually. While there were talks of capping this tax at one hundred thousand shillings, that idea had been tossed out with the latest budget.[v] Hence, owners of high-end units like the Land cruiser models would pay up to 420,000 shillings as tax. [vi] Owners of public service vehicles were equally hit by removal of the cap; a 33-seater bus that is currently going for 6.6 million would attract Ksh 165,000. [vii] As a result, majority of Kenyans who rely on public transport were now set for tougher days ahead upon implementation of the new tax. For car owners, that meant digging deeper into their pockets.
The new motor vehicle tax would be tagged along with your insurance. It was to be paid on each vehicle at the time of issuing insurance cover, right to the commissioner.[viii] The amount it all came to the details of the car such as: its make, model, engine capacity, and year of manufacture.[ix] With the 5% remittances if enacted, buying a 1 million-shilling-car meant handing over an extra 50,000 shillings to the government annually, failure to which insurers would get penalised.[x] Indeed, this tax turned insurance from a shield into a double-edged sword. Yes, you are covered, but your wallet feels the cut too.
While this tax had many drivers reaching for their wallets, there was a silver lining for certain categories of vehicles such as ambulances [xi] and vehicles owned by a person exempt from tax under the Privileges and Immunities Act Cap.179. What about cars and trucks owned by various governmental bodies and agencies such as the National Police Service? They were exempted too from the tax.[xii]
Additionally, the motor vehicle tax reform sparked a chorus of reactions. Kenya's car insurers buzzed with worry. Why? If the new tax would get the green light, they feared that Kenyan motorists would flock to the cheapest coverage- third-party insurance.[xiii] It was a loud 'NO!' in a growing crowd of dissent [xiv] as it could also have led to significant changes in car ownership and the automotive industry. It might have made people think twice before getting a new or pricey car, leading to more people buying used cars to save money. [xv]
Lastly, apart from Kenya, several other countries have proposed the motor vehicle tax. An example is Norway which stands out as a pioneer in promoting electric vehicles. [xvi] Around half of the cars sold annually in Norway are electric vehicles, thanks to generous tax incentives and other policies.[xvii] The electronic vehicles there are exempt from Value Added Tax, and are not subject to the one-off motor vehicle registration taxes.[xviii]
In conclusion, in the ever-changing world of taxes, the proposed motor vehicle tax stirred up quite a debate. It is no longer on the table[xix] as it would have made the insurance industry unsustainable and hence slow down revenues from the government.[xx] In my opinion, the tax reform was a bold move but it came with a price tag that was impossible to ignore since it would have weighed heavily on the wallets of Kenyans. While the intentions behind the tax reform were commendable, aiming to modernize our transport sector,[xxi] the financial burden it imposed might have very well slowed down the very progress. Therefore, the reform was not just a highway but a high-cost highway. What is your take on this?
*The author is a second year student at Kabarak University School of Law
[i] John Mutua, 'State makes U-turn, removes Sh100,000 car tax cap', Business Daily, 14 June 2024 -<https://www.businessdailyafrica.com/bd/economy/state-makes-u-turn-removes-sh100-000-car-tax-cap--4657386> on 15 June 2024.
[ii] Capital FM,'New Finance Bill 2024 proposes new motor vehicle tax to support Kenya Kwanza government projects', CAPITAL NEWS, 12 May, 2024 -< New Finance Bill 2024 Proposes New Motor Vehicle Tax to Support Kenya Kwanza Government Projects » Capital News (capitalfm.co.ke)> on 16 June 2024.
[iii] TRT Afrika, 'Kenyans to pay more to own vehicles in new tax proposal', TRT AFRIKA, 14 June 2024 - <https://www.trtafrika.com/business/kenyans-to-pay-more-to-own-vehicles-in-new-tax-proposal-18173378 > on 15 June, 2024.
[iv] TRT Afrika, 'Kenyans to pay more to own vehicles in new tax proposal', TRT AFRIKA, 14 June 2024 - <https://www.trtafrika.com/business/kenyans-to-pay-more-to-own-vehicles-in-new-tax-proposal-18173378 > on 15 June, 2024.
[v] John Mutua, 'State makes U-turn, removes Sh100,000 car tax cap', Business Daily, 14 June 2024 -<https://www.businessdailyafrica.com/bd/economy/state-makes-u-turn-removes-sh100-000-car-tax-cap--4657386> on 15 June 2024.
[vi] John Mutua, 'State makes U-turn, removes Sh100,000 car tax cap', Business Daily, 14 June 2024 -<https://www.businessdailyafrica.com/bd/economy/state-makes-u-turn-removes-sh100-000-car-tax-cap--4657386> on 15 June 2024.
[vii] John Mutua, 'State makes U-turn, removes Sh100,000 car tax cap', Business Daily, 14 June 2024 -<https://www.businessdailyafrica.com/bd/economy/state-makes-u-turn-removes-sh100-000-car-tax-cap--4657386> on 15 June 2024.
[viii] John Mutua, 'State makes U-turn, removes Sh100,000 car tax cap', Business Daily, 14 June 2024 -<https://www.businessdailyafrica.com/bd/economy/state-makes-u-turn-removes-sh100-000-car-tax-cap--4657386> on 15 June 2024.
[ix] SHARON MWENDE, 'Vehicle owners to pay Sh100,000 in new tax proposals', STAR, 11 May,2024 - < Vehicle owners to pay Sh100,000 in new tax proposals (the-star.co.ke)> on 16 June 2024.
[x] SHARON MWENDE, 'Vehicle owners to pay Sh100,000 in new tax proposals', STAR, 11 May,2024 - < Vehicle owners to pay Sh100,000 in new tax proposals (the-star.co.ke)> on 16 June 2024.
[xi] SHARON MWENDE, 'Vehicle owners to pay Sh100,000 in new tax proposals', STAR, 11 May,2024 - < Vehicle owners to pay Sh100,000 in new tax proposals (the-star.co.ke)> on 16 June 2024.
[xii] SHARON MWENDE, 'Vehicle owners to pay Sh100,000 in new tax proposals', STAR, 11 May,2024 - < Vehicle owners to pay Sh100,000 in new tax proposals (the-star.co.ke)> on 16 June 2024.
[xiii] SAMUEL MWANAWANJUGUNA, 'Insurers warn motor vehicle tax will push car owners to 'dangerous' third party insurance', Kenyans.co.ke, 17 May,2024 - < Insurers Warn Motor Vehicle Tax Will Push Car Owners to 'Dangerous' Third-Party Insurance - Kenyans.co.ke> on 15 June,2024.
[xiv] Samuel Mwana wa njuguna, 'Insurers warn motor vehicle tax will push car owners to 'dangerous' third party insurance', Kenyans.co.ke, 17 May,2024 - < Insurers Warn Motor Vehicle Tax Will Push Car Owners to 'Dangerous' Third-Party Insurance - Kenyans.co.ke> on 15 June 2024.
[xv] Wycliffe Musalia, 'List of new taxes William Ruto's government proposes in Finance Bill 2024', TUKO, 14 May,2024 -< https://www.tuko.co.ke/business-economy/548209-list-taxes-william-rutos-govt-proposes-finance-bill-2024-implications/> on 16 June,2024.
[xvi] Lasse Fridstrom, 'Reforming Motor vehicle taxation in Norway', Institute of Transport Economics Norwegian Centre for Transport Research, 2019, 1.
[xvii] Fridstrom, 'Reforming Motor vehicle taxation in Norway', 1.
[xviii] Fridstorm, 'Reforming Motor vehicle taxation in Norway', 1.
[xix] Phidel Kizito, 'Reprieve for motor vehicle owners as 2.5% tax Removed', Capital Business, 18 June, 2024- < Reprieve for motor vehicle owners as 2.5% tax removed - Capital Business (capitalfm.co.ke)> on 26 June 2024.
[xx] Phidel Kizito, 'Reprieve for motor vehicle owners as 2.5% tax Removed', Capital Business, 18 June, 2024- < Reprieve for motor vehicle owners as 2.5% tax removed - Capital Business (capitalfm.co.ke)> on 26 June 2024.
[xxi] Capital FM, 'New Finance Bill 2024 proposes new motor vehicle tax to support Kenya Kwanza government projects', CAPITAL NEWS, 12 May, 2024 -< New Finance Bill 2024 Proposes New Motor Vehicle Tax to Support Kenya Kwanza Government Projects » Capital News (capitalfm.co.ke)> on 16 June 2024.
