Owning and insuring a vehicle in Kenya will be costly affair after Treasury Cabinet Secretary Prof. Njuguna Ndung’u on Thursday announced the introduction of the motor vehicle tax.
This is despite the sharp criticism that the issue had attracted during public participation.
Ndungu seems to have ignored the concerns from various parties and made the proposal when he read the Budget estimates in Parliament.
The new law seeks to introduce a 2.5 percent 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 Sh100,000.
The minimum tax remains unchanged at Sh5,000 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 Sh5,000 per annum,” Ndung’u said.
Vehicle owners will now have to pay the tax at the time of issuing an insurance cover.
This means that a car valued at Sh4 million will see owners part with a motor vehicle tax of a Sh100,000.
A car valued at Sh5 million will attract a motor vehicle tax of Sh125,000, a Sh10 million vehicle will see a deduction of Sh250,000. There is however capping of the same at Sh100,000.
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.
Meanwhile, Ndungu said there will also be a review of regional development authorities with a view to removing duplication of roles with those of county governments and ministries, departments and agencies.
Other measures include consolidation of public procurement for common user items, suspension of the policy of semi-autonomous government agencies investing surplus funds and will instead be expected to surrender excess funds to the exchequer.
These include tackling of a bloated wage bill with suspension of all new recruitment for the next one year and an audit and cleansing of all public payrolls with a view to eliminating ghost workers and enforcing payment of salary scales.
Other measures that would affect allowances earned are a reduction on spending on foreign travel and training expenses, with all training restricted to government institutions and use of Wi-Fi and emails for efficient communication.
Those in the public service, police and prisons will also have their insurance schemes reviewed and aligned to the Social Health Insurance Fund (SHIF).
The measures also include a suspension of all refurbishments of government offices and a suspension of the purchase of furniture for a year.
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