KRA Deputy Commissioner at pains to defend motor vehicle tax proposal

Kenya Revenue Authority (KRA) Deputy Commissioner Maurice Oray was on Wednesday at pains to explain the rationale behind the proposed motor vehicle tax captured in the Finance Bill 2024.

Speaking on Citizen TV's ‘The Big Conversation’ show, Oray underscored the need to align the tax system with the nation's developmental needs, citing challenges primarily rooted in tax base discrepancies, rampant exemptions, and low compliance levels.

According to Oray, the proposed Finance Bill 2024 is seeking to address such issues.

"One of the problem we have as a developing country is aligning the tax system and the challenges largely arise from the issue of the tax base. The other issue is that we have too many exemptions," he said.

"The other challenge we have is compliance level and the structure of our economy which is largely informal. The Finance Bill and the budget are trying to address these problems. If you look at the new taxes that have been brought in, the motor vehicle tax, the eco-levy, the removal of certain exemptions is basically to address the issue of tax-base expansion."

Oray subsequently faced tough questions from Citizen TV journalists particularly around the necessity and fairness of the proposed tax.

"Are you saying that people who have motor vehicles don't pay tax?" Citizen TV's Sam Gituku posed.

"Somebody who has a vehicle definitely has a source of income but not everybody who owns  a motor vehicle is paying taxes and that brings us to a tax regime that basically addresses such areas," Oray said in an attempt to clarify the intent behind the controversial tax proposal.

Gituku however quickly interjected, highlighting the existing tax on fuel that all motorists pay.

"When they fuel their cars, they are paying taxes on fuel, aren't they? " he asked.

"I meant tax on income. The income that you got to pay for that fuel should have been taxed," the KRA Deputy Commissioner responded.

The conversation escalated further when Citizen TV's Mashirima Kapombe pressed Oray on the potential double taxation of individuals who already pay income taxes such as PAYE and the Affordable Housing Levy.

"That is actually the main area of discussion. If we were to go for those people who are earning salaries only, to get the level of tax that will boost our economy, it means we have to increase taxes to compensate the other person who has a car but somehow he manages not to pay," said Oray.

Mashirima further questioned how the proposed motor vehicle tax would differentiate between those who already pay taxes and those who evade them entirely.

"When the person who has a car pays motor vehicle tax he will actually be in the tax radar and using our systems we can follow this. People might be having income or expenditure related to their earnings but when you go to their tax declaration, you find they are not declaring anything," said Oray.

"These people are not only motor vehicle owners. There are certain people in business who are also difficult to tax. What the tax policy would require is that we have a presumptive tax. The presumptive tax may be based on an asset."

Commenting on Oray's feedback, National Assembly Public Accounts Committee Chairman and Nominated MP John Mbadi highlighted that the jumbled up answers from the KRA Deputy Commissioner demonstrated a lack of understanding from the taxman and the ruling regime on how to grow Kenya's tax base.

"I am shocked that the senior gentleman from KRA's understanding of the tax base is very wanting. How would you say that motor vehicle tax is going to target those who are not paying taxes as of now? When you purchase a motor vehicle over 40 percent of its value is tax," he said.

"Again in using that vehicle, we pay a lot of taxes and even in maintaining it. You cannot say the person who owns the vehicle is being brought to the tax base. I think President Ruto needs wise men and women. The level of advisors he has is failing him."