Kenyans Driving Luxury Cars to Pay Sh400,000 Annually

The Kenyan National Treasury has abolished the Sh100,000 cap on annual motor vehicle tax in a significant policy shift aimed at expanding the tax base.

The announcement was made by Treasury Cabinet Secretary Prof Njuguna Ndung'u during the budget presentation for the 2024/25 financial year, marking a decisive step towards broadening the government's revenue collection efforts. This move will substantially increase tax bills for owners of high-end vehicles. Under the new tax regime, the annual motor vehicle tax will be calculated as 2.5 per cent of a vehicle's value, with a minimum payment of Sh5,000 per year. This change effectively eliminates the previous cap, which had limited the proposed tax to a maximum of Sh100,000 annually.

Consequently, owners of luxury vehicles costing upwards of Sh15 million will now face an annual tax bill of Sh420,000, a substantial increase from the previous cap. The impact of this policy shift extends beyond individual car owners. Public transport operators, including bus, matatu, and lorry owners, will no longer benefit from the previous cap, potentially leading to higher fares for passengers. However, the Treasury has proceeded with the proposal despite objections from these stakeholders. Certain categories of vehicles will remain exempt from the annual tax, including ambulances, vehicles owned by the National Intelligence Service, the military, police, and national and county governments. Additionally, vehicles owned by individuals with tax privileges under the Privileges and Immunity Act will not be subject to the new tax.

The Treasury's decision to remove the cap on motor vehicle tax aligns with its broader objective of achieving Sh2.91 billion in ordinary collections for the 2024/25 financial year. Specifically, the motor vehicle tax is expected to contribute Sh58 billion to this target. However, economists and budget analysts have expressed concerns that the tax may dampen vehicle sales, particularly in the high-end segment. The anticipated rise in insurance costs for these units could further exacerbate the potential impact on consumer behaviour. Nevertheless, the government appears resolute in its pursuit of fiscal consolidation and self-reliance.

Official data reveals that the number of registered motor vehicles reached 2.19 million in 2022, up from 1.27 million eleven years ago. This reflects the expanding automotive market and the corresponding need for sustainable revenue generation.