Business

Insurers urge MPs to reject proposed motor vehicle tax, cite potential harm to industry

Cars on General Waruinge street. (Photo: Amiin Abdullahi)

By Bashir Mohammed | Saturday, May 18, 2024

AKI acknowledges the need to expand tax revenue but advocates for a focus on creating a conducive business environment to achieve sustainable growth.

The Association of Kenya Insurers (AKI) has appealed to the National Assembly to reject the proposed motor vehicle tax in the Finance Bill, 2024, citing far-reaching adverse effects on the insurance industry and the economy.

The Finance Bill 2024 introduces a 2.5 per cent motor vehicle tax, capped at Sh100,000, which AKI argues will lead to a significant increase in insurance premiums.

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According to AKI executive director Tom Gichuhi, the average comprehensive insurance premium rate currently stands at 5 per cent, and with the additional 2.5 per cent tax, the total premium rate will surge to 7.5 per cent.

Gichuhi warned that this increase will encourage motorists to buy third-party motor insurance, leaving their vehicles unprotected in the event of an accident.

This type of insurance provides coverage for damages to other parties caused by the insured vehicle, including physical injuries, vehicle damage, property damage, and death. However, if drunk driving causes the accident, third-party insurance does not provide any compensation, leaving the policyholder vulnerable to significant out-of-pocket expenses.

“With motor vehicle insurance being compulsory in Kenya, we anticipate a major shift towards third-party motor insurance if this tax is implemented. Consequently, the implementation of this tax will expose motorists to higher risks, as it will essentially only cover third-party liabilities, leaving their vehicles unprotected in the event of accidents. This could burden motorists with significant out-of-pocket expenses for repairs or replacements,” Gichuhi stated.

AKI acknowledges the need to expand tax revenue but advocates for a focus on creating a conducive business environment to achieve sustainable growth.

“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 this, we can significantly and more sustainably increase tax collection. This necessitates ongoing collaboration with all stakeholders to ensure the creation of a robust and thriving business ecosystem,” noted Gichuhi.

Gichuhi urged MPs to reconsider the proposed tax, citing its potential to harm the insurance industry and the economy.

“We implore the National Assembly to reconsider the proposed motor vehicle tax, as its implementation would have far-reaching adverse effects on both the insurance industry and the economy at large. As the representative body of the insurance sector, we stand prepared to engage continuously with all stakeholders to cultivate a sustainable business environment,” AIK stated.