High-end car owners to be hit hardest as Gov’t introduces motor vehicle tax

Owning and insuring a vehicle in Kenya may now be a costly affair after Treasury Cabinet Secretary Prof. Njuguna Ndung’u on Thursday announced the introduction of the motor vehicle tax.

The motor vehicle tax has attracted sharp criticism from various quotas, as motor vehicle owners contemplate the impact of the proposal.

The law seeks to introduce a 2.5% annual tax on the value of the vehicle. However, in what appears to be an about turn, the government has now removed the maximum cap, which had been set at Ksh.100,000.

The minimum tax remains unchanged at Ksh.5,000 yearly as per the proposal in the Finance Bill, 2024.

“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% of the value of the vehicle subject to minimum amount of Ksh.5,000 per annum,” CS Ndung’u said in his budget statement in Parliament.

Vehicle owners will now have to pay the tax at the time of issuing an insurance cover. This means that a car valued at Ksh.4 million will see owners part with a motor vehicle tax of a Ksh.100,000.

A car valued at Ksh.5 million will attract a motor vehicle tax of Ksh.125,000; a Ksh.10 million vehicle will see a deduction of Ksh.250,000.

All these, in addition to the insurance premium that is pegged at 4.5 per cent of the value of the vehicle.

Insurers in the country say the annual tax now poses a serious financial burden to motor vehicle owners and potential car buyers, which might result in lower uptake of insurance, forcing some motorists to opt for third party insurance as opposed to the comprehensive insurance package.

Critics of the motor vehicle tax say it will negatively impact car ownership in the country going forward.

But the government is keen on implementing the plan, which has been widely used in some developed nations around the world.