President William Ruto will miss out on billions that were anticipated for collection through the Motor Vehicle Tax.
According to National Assembly Finance Chair Kimani Kuria, Ruto's government was planning on generating Ksh58 billion through the introduction of the tax.
The Motor Vehicle Tax was proposed by Ruto's administration as a strategy to raise revenue for the Ksh3.9 trillion budget. Motorists were to pay 2.5 per cent of the vehicle's value.
"The motor vehicle circulation tax as proposed is going to raise Ksh58.02 billion," the MP stated during an interview on Citizen TV in May.
Notably, Ksh58 billion was the targetted collection when the government still had the maximum cap of Ksh100,000.
Therefore, this figure would have risen significantly following proposals to remove the Ksh100,000 cap. This move would have seen Kenyans who own expensive vehicles pay more.
For instance, Kenyans driving a vehicle worth Ksh10 million were to pay Ksh250,000 per year after the removal of the cap.
Why the Tax Proposal Was Rejected
Apart from the public uproar, the proposed tax would have raised several legal issues. This is because the tax was being levied on assets and not income.
"The proposal to cap the levy at Ksh100,000 makes the tax discriminatory and non-progressive," the finance chair noted in his report to parliament.
"The proposal will have adverse effects on the insurance-taking behaviour of motor vehicle owners and further lead to negative effects on the insurance sector."
On the other hand, there were also concerns that the government was imposing a tax on tax given that the value of a vehicle is determined inclusive of the import duty among others.
"Commercial vehicles are subject to advance tax and therefore imposing this tax will amount to double taxation.
"From the foregoing, the Committee recommends the deletion of the proposed Motor vehicle tax," read the report in part.
