- Gichuhi said they anticipate a major shift towards Third Party motor insurance if the tax comes to force.
- Insurers advocated for a focus on creating an environment conducive to business growth.
Image: FILE
The Association of Kenya Insurers (AKI) has asked 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 at 2.5 per cent of the vehicle value, capped at a maximum of Sh100,000.
AKI said the new tax will increase the cost of motor insurance.
“Currently, the average comprehensive insurance premium rate stands at 5 per cent and with the additional 2.5 per cent, the total premium rate surges to 7.5 per cent,” AKI executive director Tom Gichuhi said.
He added that since motor vehicle insurance in Kenya is compulsory, they anticipate a major shift towards third-party motor insurance if the tax comes into force.
“Consequently, motorists will face higher risks, as they will 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,” he said.
Gichuhi added that the shift towards Third Party coverage will lower insurers’ income which translates to lower corporate tax contributions.
“Additionally, a reduction in insurers’ income will prompt downsizing the workforce subsequently reducing employee tax revenues to the government,” he explained.
He said AKI acknowledges the necessity of expanding the tax revenue to meet the demands of a growing economy but it advocates for a focus on creating an environment conducive to business growth.
“By doing so, 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,” he said.
Gichuhi implored on MPs to reconsider the proposed tax saying its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large.
He added that AKI is ready to engage continuously with all stakeholders to cultivate a sustainable business environment.