The Association of Kenya Insurers (AKI) is calling on the National Assembly to discard the proposed motor circulation tax in the Finance Bill, 2024.
The Finance Bill, 2024 has introduced a motor circulation tax set at 2.5 per cent of the vehicle value, capped at a maximum of Sh100,000.
This imposition will notably increase the cost of motor insurance.
Currently, the average comprehensive insurance premium rate stands at five per cent, and with the additional 2.5 per cent, the total premium rate surges to 7.5 per cent.
"With motor vehicle insurance being compulsory in Kenya, we anticipate a major shift towards third-party motor insurance if this tax is implemented,'' AKI said in a statement.
Consequently, the lobby said motorists will face higher risks, as they will essentially only be covered for third-party liabilities, leaving their own vehicles unprotected in the event of accidents.
"This could burden motorists with significant out-of-pocket expenses for repairs or replacements."
Moreover, a shift towards third-party coverage will lower insurers' income which will translate to lower corporate tax contributions.
It adds that a reduction in insurance income will prompt the downsizing of the workforce subsequently reducing employee tax revenues to the government.
"While we acknowledge the necessity of expanding our tax revenue to meet the demands of a growing economy, we advocate for a focus on creating an environment conducive to business growth."
By doing so, AKI says, increased tax collection can be achieved substantially and more sustainably.
This necessitates ongoing collaboration with all stakeholders to ensure the creation of a robust and thriving business ecosystem.
"We implore the National Assembly to reconsider the proposed motor circulation tax, as its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large."
