The removal of the Ksh.100,000 cap on Motor Vehicle Circulation Tax in the 2024/25 budget has drawn significant attention, particularly from high-end car owners who are now facing higher tax burdens.
Under the proposed Finance Bill 2024, car owners were set to pay 2.5 per cent of their vehicle’s value in addition to their insurance rates, with a minimum of Ksh.5,000 and a maximum of Ksh.100,000.
However, with the removal of the ceiling, high-end car owners will now have to pay more in Motor Vehicle Circulation Tax.
For example, the owner of a 2018 model Toyota Land Cruiser Prado (TX) GRJ151, valued at around Ksh.10.2 million, will now have to pay Ksh.255,000 in tax.
Similarly, a motorist driving a Mercedes Benz i8 (with a price tag of Ksh.18 million, depending on the model) will now be required to pay Ksh.450,000 in tax.
The Land Cruiser Prado, manufactured by Japanese automaker Toyota, is renowned for its efficiency and reliability, making it a popular choice among motorists.
However, the increased tax burden on high-end vehicles has been met with criticism, particularly from the Association of Kenya Insurers (AKI), which argues that the cost of motor insurance is likely to rise as a result.
“With motor vehicle insurance being compulsory in Kenya, we anticipate a major shift towards third-party motor insurance if this tax is implemented. Consequently, motorists will face higher risks, as they will essentially only be covered for third-party liabilities, leaving their vehicles unprotected in the event of accidents,” AKI executive director Tom Gichuhi stated in May 2024.
The Insurance Act provides regulations making it mandatory for every motorist to have an insurance cover in place.
“To expand the tax base and make our country self-reliant, I propose to introduce an annual motor vehicle tax at the rate of 2.5 per cent of the value of the vehicle subject to a minimum amount of Ksh.5,000 per annum,” CS Ndung’u stated while presenting the 2024/25 budget before the National Assembly.
The removal of the Ksh.100,000 cap on Motor Vehicle Circulation Tax has significant implications for high-end car owners, some of whom may now be required to pay up to Ksh.750,000 annually if their vehicle’s valuation exceeds Ksh.30 million.
For example, owners of vehicles like the Bentley Bentayga fall into this category.
On the other hand, owners of more affordable vehicles such as the Toyota Vitz (2020 model) may expect to pay an average of Ksh.45,000 yearly, while owners of a Mazda CX-5 may have to part with Ksh.135,000.
The penalties for failing to pay the new tax are significant, with insurers facing a fine of 50 per cent of the uncollected tax in addition to the actual amount owed.
The government aims to collect Ksh.58 billion from motorists through the implementation of this new tax. However, this move has sparked backlash from Kenyan citizens, many of whom have called for the contentious tax to be eliminated from the Finance Bill 2024.
In response to the public outcry, Kuria Kimani, the chairperson of the National Assembly Finance Committee, urged Kenyans to consider alternative means of transportation if they were unwilling to pay the new tax.
“We are saying fine “I don’t want to pay the vehicle circulation tax, then don’t use the car the same way as if you don’t want to use the expressway. So don’t pay for it, go through other means,” Kimani stated in May 2024.
