Motorists will start paying Value Added Tax (VAT) when acquiring insurance services should the new proposal by the National Treasury be implemented.
In its Medium Term Strategy for the Financial Years 2024/2025- 2026/2027, the National Treasury said that the move is set to increase the VAT revenue generated across the country.
According to the Prof. Njuguna Ndung'u-led ministry, insurance, which was exempted from VAT, will be subjected to the general rate and hence raise the revenue as a percentage of the Gross Domestic Product (GDP).
If adopted, motorists will be subjected to the VAT at the point of acquiring an insurance cover, which protects them from any liability.
Currently, there are different insurance plans with varied costs including comprehensive insurance which covers vehicle and other damages, third-party insurance which covers damage to others and motor-vehicle insurance which covers businesses with multiple vehicles.
The tax, if implemented will also affect other insurance services including travel insurance, health insurance, credit insurance, and group insurance among others.
In the document, the National Treasury also proposed introducing a Motor Vehicle Circulation Tax that will also affect motorists acquiring an insurance cover.
This means that Kenyans will start paying the tax, considered as wealth tax, once the buyer gains full ownership of the vehicle.
If adopted, the tax will coincide with the introduction of a carbon tax, aimed at discouraging the consumption of fossil fuels.
In August, the Treasury Ministry had asked Kenyans to prepare for more taxation in order to raise the revenue and spur economic growth in the country.
Treasury CS Ndung'u said that Kenya's public debt has called on the government to seek alternative revenue sources to fund development.
"Among key issues covered include the fiscal deficit for FY 2023/24 which currently stands at Ksh718.9 billion, and how the deficit will be financed through borrowing from external and domestic sources," he stated.
The CS added that the Kenyan economy is projected to grow by 5.5 percent in 2023, with the boost attributed to the agriculture sector.
