- According to the Bill, the value of a motor vehicle shall be determined based on the make, model, engine capacity in cubic centimeters, and year of manufacture.
- Matatu Owners Association has termed the proposed motor vehicle tax as 'insane'.
Owning a car in Kenya will mean paying 2.5 per cent of its value to the government from your income every year if the proposed tax law is passed.
The Finance Bill, 2024 seeks to impose Value Added Tax (VAT) on bank transactions and raise excise duty to 20 per cent from 15 per cent.
Most first car owners in Kenya borrow to acquire the asset.
The latest FinAccess Household Survey by the Financial Sector Deepening (FSD) and Central Bank of Kenya (CBK) shows that 67 per cent of vehicles in the country are refinanced.
This means that Harriet, * a mid-career banker earning a gross salary of Sh200,000 and planning to acquire her first car worth Sh2.4 million through a bank loan will have paid the government almost the same value in taxes to own it.
Picture this:-
The proposed law seeks to introduce a 2.5 per cent annual tax on the value of vehicles, with the deduction set at a minimum of Sh5,000 and a maximum of Sh100,000 whichever is higher.
The Finance Bill 2024 has proposed the introduction of a motor vehicle tax, with a rate of 2.5% of the vehicle's value.
The deduction, called motor vehicle tax, will be paid on each vehicle at the time of issuing an insurance cover if the Bill is passed into law in the current format.
According to the Bill, the value of a motor vehicle shall be determined based on the make, model, engine capacity in cubic centimeters, and year of manufacture.
"An insurer who fails to collect and remit motor vehicle tax shall be liable to pay a penalty equivalent to fifty percent (50 per cent) of the uncollected tax and the actual amount of the uncollected tax."
This means, that Harriet will pay a motor vehicle tax of Sh60,000 in a year starting July 1 if the law is passed in the Parliament and assented to by President Ruto.
If she applies for a loan facility to finance the vehicle, she will pay VAT on transactions at 16 per cent on top of a raised excise duty of 20 percent.
NCBA Group Bank CEO and chairperson of Kenya Bankers Association (KBA)John Gachora has strongly criticized the proposed taxes in the Financial Bill 2024.
He specifically targeted the administration's plan to impose new transaction charges, labeling them as 'unnecessary taxation' and condemning the 'introduction of both Tobin Tax and Robinhood Tax by removing VAT exemptions for banking transactions'.
"The bill could devastate the banking industry, potentially leading many to revert to 'mattress banking'. It will make basic banking services more expensive, increase the cost of credit, and push people towards the black market,'' Gachora said.
To ship the vehicle home, the new car owner will pay an import duty of 25 per cent worth Sh155,964, a 25 per cent excise duty of Sh194,954 and Value Added Tax of 16 per cent (Sh155,963).
Others are the Import Declaration Fee at four per cent and the Railway Development Levy at two per cent worth Sh21,834 and Sh12,477 respectively.
The new Bill proposes to subject to tax the gross income of a ship owner arising from the carriage of passengers and cargo that embark in Kenya at the rate of three percent of the gross amount received if there is no reciprocal arrangement with Kenya and the country of residence of the non-resident ship owner.
Shippers are likely to pass the additional bill to customers, further making it costly to import anything into the country.
To import the vehicle, Harriet will have paid just over Sh500,000 before paying an annual motor tax of Sh60,0000 from her salary which attracts another host of deductions that leave her with a net pay of close to Sh150,000.
Once she has the car, she will pay 40 per cent of the daily fuel cost to the government in taxes, tolls on selected roads and a host of levies.
Matatu Owners Association (MOA) chairman Albert Karakacha yesterday termed the proposed motor vehicle tax as 'insane', saying that his members are already suffocating under the current tough tax regime.
"We are already paying a premium for fuel in the name of taxes. The economy is tough to generate enough revenue to repay our loans. We strongly oppose insane proposals in that bill,'' Karakacha said.
Most vehicle owners have opposed the proposal, asking members of Parliament to be honorable enough to squash it.
"Who came up with the idea? Has the government built or created a supportive environment to sustain e-mobility? Those proposals are wicked and illogical,'' Kelvin Mbeche, a taxi operator in Westlnds told the Star.
His sentiments are shared by James Mugo, a business operator in Westlands.
"What is the proposed tax curing? Is it a wealth tax, carbon, or simply user tax?'' he posed.
OTHER PROPOSALS
The taxpayer is faced with a host of new taxes away from motor and banking in the proposed law.
Tax experts at Bowmans, KPMG and Deloitte have critiqued the imposition of a five per cent withholding farm tax on produce sold through cooperatives, a key channel for many Kenyan farmers.
While the government hopes to widen the tax net and boost revenue, analysts warn the initiative could push farmers towards informal channels, selling directly to consumers to avoid the tax.
This could shrink the formal agricultural sector, ultimately harming tax revenue in the long run.
The potential impact on consumers is also unclear. While informal sales might initially bring down prices, experts warn of long-term consequences.
"Finding a balance between widening the tax net and supporting the crucial agricultural sector will be key to ensuring the success of any new tax measures."
The government is also planning to introduce a VAT of 16 per cent on bread, a move that could potentially push up prices of the popular breakfast meal in the country.
Furthermore, the government is also planning to amend Section 2 of the Income Tax Act to expand the definition of digital content monetization to include creative works, creating or sharing of materials, or any other materials that are noted exempted under the Act.
During this period, the government is planning to review the digital service tax (DST) to bring on board residents.
In addition to the above, the government is considering developing a framework that will guide the introduction of a carbon tax in Kenya.
Over and above promoting the generation of additional revenue, this initiative is expected to lower greenhouse gas (GHG) emissions and ensure the state meets its environmental sustainability goals.