The proposed motor circulation tax of 2.5 percent of the vehicle value, which is set at a minimum of Sh5,000 as per the Finance Bill of 2024, will increase the cost of motor insurance, the Association of Kenya Insurers (AKI) said in a statement issued on Friday, May 18.
The association said the tax will push up the cost of motor vehicle insurance and urged Members of Parliament to throw it out or reconsider it as its implementation would hurt not only the insurance industry, but also the economy in general.
“This ridiculous proposition means that we will ask policyholders to increase their annual premiums by 50%-100% depending on the value of their vehicles,” executive director of AKI, Tom Gichuhi, said.
Mr Gichuhi said the tax could burden motorists with huge overheads especially for repairs or replacements and that a shift towards third-party coverage will lower (just) insurers’ income, thus resulting in lower corporate tax contributions.
“A reduction in insurers’ income will prompt downsizing the workforce subsequently reducing employee tax revenues to the government,” he said.
Mr Gichuhi noted that while AKI acknowledges the need for government to expand the tax base, it is critical to create a conducive business environement.
“With motor vehicle insurance being compulsory in Kenya, we anticipate a major shift towards third-party motor insurance if this tax is implemented. Consequently, motorists will face higher risks, as they will essentially only be covered for third-party liabilities, leaving their vehicles unprotected in the event of accidents,” AKI executive director Tom Gichuhi said in a statement on Friday.
He urged insurers to ignore the very notion that the tax exists saying, “do not accept any pupated appointment by Kenya Revenue Authority as a collection agent for this tax. Continue issuing cover to your clients as usual on the existing terms that are mandated by IRA. Ignore any threats or attempts to make you pay unfounded fines. They cannot close the entire insurance industry.
