Vehicle tax angers insurers, banks

Imported secondhand vehicles at a yard in Mombasa.

Photo credit: File | Nation Media Group

The government targets to collect Sh58 billion from the motor vehicle circulation tax to be charged at 2.5 percent of the asset value payable at the time of issuance of insurance cover. The minimum amount payable has been set at Sh5,000 and capped at Sh100,000.

An insurer who fails to collect and remit the tax will be liable to a penalty equivalent to 50 percent of the uncollected tax, plus the actual amount of tax.

Underwriters are expected to remit the deductions to the Kenya Revenue Authority (KRA) within five working days of writing the cover.

In their submission to MPs, insurers through the Association of Kenya Insurers (AKI) said the collection and remittance of the tax will present a compliance headache since vehicle owners renew covers at different times of the year.

They also warned that motorists might opt for cheaper third-party instead of comprehensive insurance cover as a result of the levy to save on costs.

In its submission, The American Chamber of Commerce, Kenya (AmCham) called for a compromise on the levy, urging the government to cut it to one percent from 2.5 percent, and expand the categories of vehicles exempt from paying to include commercial and agricultural vehicles.

Increasing costs

Coca-Cola Kenya also backed this proposal by the chamber to cut the levy to one percent.

The Kenya Bankers Association argued against the tax, saying that increasing the fleet cost for businesses will result in lower uptake of motor vehicle loans.

The bankers also said the tax is discriminatory since the cap of Sh100,000 effectively favours those with vehicles valued above Sh4 million.

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Note: The results are not exact but very close to the actual.