Prado, Mercedes, BMW owners to pay more as gov't removes Motor Vehicle tax cap

High-end car owners were among the hardest hit in the 2024/25 budget after Treasury Cabinet Secretary Njuguna Ndung’u removed the Ksh.100,000 cap on Motor Vehicle Circulation Tax.

Under the proposed Finance Bill 2024, car owners were to pay 2.5 per cent of the vehicle's value on top of their insurance rates with the minimum set at Ksh.5,000 and limit at Ksh.100,000.

On Thursday during the budget reading, the government announced the removal of the ceiling meaning high-end car owners will pay more Motor Vehicle Circulation Tax.

To put it into perspective, the owner of a 2018 model Toyota Land Cruiser Prado (TX) GRJ151, whose retail price is about Ksh.10.2 million, will pay Ksh.255,000 while a motorist who drives a Mercedes Benz i8 (Ksh.18 million price tag depending on the model) will part with Ksh.450,000.

The Land Cruiser Prado, produced by Japanese automaker Toyota, is one of the most loved brands in the market as motorists praise the vehicle for its efficiency and reliability.

The move was criticised by the Association of Kenya Insurers (AKI) which pointed out that the cost of motor insurance would increase. 

“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.

In other cases, some high-end car owners will be prompted to pay up to Ksh.750,000 annually for the motor vehicle tax if their vehicle’s valuation exceeds Ksh.30 million such as a Bentley Bentayga.

A Toyota Vitz owner (driving a 2020 model) will pay an average of Ksh.45,000 yearly while a Mazda Cx-5 owner will part with Ksh.135,000.

Penalty

The penalty for failing to pay the new tax falls on the insurer who is subjected to a fine of 50 per cent of the uncollected tax in addition to the actual amount.

With the removal of the Ksh.100,000 cap, the government plans to collect Ksh.58 billion from motorists in the new tax.

This has, however, elicited an uproar from Kenyans who sought the contentious tax to be eliminated from the Finance Bill 2024.

In response, National Assembly Finance Committee Kuria Kimani appealed to Kenyans to seek other means of transportation if they didn’t want 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.