Scrap Proposed Vehicle Tax, Insurers Plead with MPs
In response to the Finance Bill, 2024, which proposes a new motor circulation tax, the Association of Kenya Insurers (AKI) has voiced significant concerns. This bill seeks to introduce a tax amounting to 2.5 percent of a vehicle’s value, with the maximum charge set at Sh100,000.
This proposed modification has stirred unease within the insurance sector, primarily due to its potential to escalate the cost of motor insurance significantly. Tom Gichuhi, the executive director at AKI, emphasized the challenges this new tax could pose. “Currently, the average comprehensive insurance premium rate stands at 5 percent. With the addition of the 2.5 percent tax, we could see the total premium rate leap to 7.5 percent,” he stated.
Gichuhi also highlighted the compulsory nature of motor vehicle insurance in Kenya, expressing concern over an expected transition towards third-party motor insurance should the new tax be implemented. “Such a shift would lead motorists to only be covered for third-party liabilities. Their vehicles would thus be unprotected in the event of accidents, potentially leading to substantial repair or replacement expenses out of their pockets,” he explained.
Moreover, the move towards third-party coverage could have wider economic implications, according to Gichuhi. He indicated that this shift would likely result in reduced income for insurers, which in turn would lead to decreased corporate tax contributions. “A decline in insurers’ income might also trigger workforce reductions, further diminishing employee tax revenues to the government,” he added.
AKI recognizes the government’s need to enhance tax revenue to support the growing economy but urges a balanced approach. Gichuhi stated, “Our focus should be on fostering an environment conducive to business growth. This way, we can achieve heightened tax collection in a more substantial and sustainable manner. To this end, continuous collaboration with all stakeholders is essential to ensure the creation of a robust and thriving business ecosystem.”
In a direct appeal to lawmakers, Gichuhi implored MPs to reconsider the proposed vehicle tax, warning of its potentially far-reaching negative implications on both the insurance industry and the wider economy. He assured that AKI is committed to engaging with all stakeholders persistently to nurture a sustainable business environment.
