Finance Bill 2023: Will All Car Owners Pay Advance Tax Per Seat Per Month?

The internet was on Tuesday morning, May 30, awash with reports of a new tax that would see all car owners subjected to a monthly tax charged depending on the size of the car.

The conversation started after a number of thought leaders shared a section of the Finance Bill that appeared to communicate the new taxes.

A fact-check by Money254, however, has established that not all car owners will be subjected to the referenced advance tax.

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The section of the Finance Bill shared on social media seeks to amend Section 8 of the Income Tax Act which references the tax that has already been existent, applying only to commercial vehicles.

The Finance Bill 2023 seeks to increase the amount paid by commercial vehicles including vans, saloons, trucks, lorries, trailers, etc.

The Kenya Revenue Authority (KRA) defines commercial vehicles as those that are registered for business use. This includes matatus, taxis, company vehicles, delivery cars, and all Public Service Vehicles (PSVs). 

At the moment, KRA charges Ksh60 per passenger per month or Ksh2400 per year - whichever is higher. This rate applies to saloons, station wagons, mini-buses, and coaches. 

Matatus, Taxis to Pay Higher Taxes

If the Finance Bill 2023 is passed, the rate will be increased to Ksh100 per passenger per month or Ksh5,000 per year - whichever is higher. 

For example, if you own a 14-seater matatu, the rate paid to KRA will rise from Ksh10,080 per year to Ksh16,800 for the same period. 

For vans, pickups, trucks, prime movers, trailers and lorries; the current advance tax is Ksh1,500 per ton load capacity per year or Ksh2,400 per year - whichever is higher.

The proposed law seeks to double this tax to Ksh3,000 per ton load capacity per year or Ksh5,000 - whichever is higher. For example, if you own a Mitsubishi Canter with a 5-tonne capacity, the current advance tax has been Ksh7,500. This will increase to Ksh15,000 if Parliament passes Finance Bill 2023 without amendments to this section. 

Commercial vehicles that are used for agricultural purposes are exempted from this tax. Vehicles that are registered in the name of public institutions such as universities and parastatals are exempted also exempted from this tax. 

Housing Fund 'Tax'

In related developments, Housing PS Charles Hinga on Monday, May 29, indicated that those who contribute to the Housing Levy and seek to exit after seven years will get back their contributions - but will be subjected to the 30% PAYE tax deduction. 

"If after 7 years you do not want a house, you will get your money back, however, it will be subject to ordinary tax. The money is a saving and was not taxed initially. If you could have earned the money, you would have paid tax. That means for the seven years, you did not pay the tax," Hinga explained.

Those who exit will be entitled only to their 3% contributions and will not access the employer’s contribution until, after the lapse of 15 years - or retirement, whichever comes first. 

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