Kenyan Government Faces Backlash Over Vehicle Circulation Tax Plans

Kenyan authorities are deliberating the implementation of a contentious motor vehicle circulation tax, a move met with strong resistance from various stakeholders.

The chairman of Parliament’s Finance and Planning Committee highlighted the potential consequences of scrapping the tax, indicating a staggering 58 billion shillings deficit in the budget. This financial shortfall poses a substantial threat to the country’s revenue collection efforts.

Amidst hearings, stakeholders voiced their concerns, with the insurance industry particularly vocal against the proposed tax. The umbrella body representing insurers argued vehemently against its implementation, citing potential risks to public safety. According to the Association of Kenya Insurers (AKI), the tax could lead to a decrease in the number of insured vehicles, subsequently jeopardizing the safety of Kenyan citizens.

“With close to three million vehicles registered in Kenya, and only 1.5 million currently insured, the introduction of this tax could further reduce the number of insured vehicles,” expressed an AKI representative.

Concerns were also raised by individual motorists, questioning the rationale behind the tax in relation to the costs of vehicle ownership and insurance premiums. The proposed tax rate, set at 2.5%, sparked debate, with suggestions to lower it to 1% to alleviate the burden on motorists.

The committee’s chairman, however, underscored the necessity of generating revenue through such measures, emphasizing the potential consequences of a budget deficit. “Removing 58 billion would be removing it from the budget. The only way would be to reduce the budget,” stated Kimani Kuria.

Experts echoed concerns over the broader impact of proposed taxation measures, including a 16% Value Added Tax (VAT) on aviation-related services. Organizations such as the International Air Transport Association (IATA) warned of adverse effects on the aviation and tourism industries, potentially making air travel to Kenya more expensive.

The American Chamber of Commerce also weighed in, advocating for a reduction in the proposed tax rate to mitigate its impact on vehicle owners and the wider economy.

“The introduction of the motor vehicle circulation tax has been one of the contentious issues in this year’s finance bill, and stakeholders are reading from the same script in its opposition,” remarked the committee.

The ongoing debate reflects the complexities surrounding fiscal policy and revenue generation in Kenya. As discussions continue, stakeholders remain vigilant, advocating for solutions that balance fiscal responsibility with the welfare of citizens and economic sectors.


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